Travel expenses

Do You Know Where Your Tax Home Is?

Apr 17th 2019
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The tax law says you can deduct your travel expenses, including transportation and lodging, when you’re away from home on business. But do you know where your “tax home” is? In a new case, Brown, TC Memo 2019-30, 4/8/19, the taxpayer claimed he was working away from his on a temporary assignment, but the Tax Court denied the deduction.

For tax purposes, your home is usually the general vicinity of your principal place of employment, not your personal residence. If you don’t have a permanent place of business (e.g., you work from multiple locations for various clients), your permanent residence may be treated as your tax home. Thus, if you are temporarily working at several different locations, you may be able to deduct travel expenses between your residence and those job sites.

Generally, a temporary assignment in a single location is one that is realistically expected to last for one year or less and does, in fact, last for one year or less.  However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than one year— whether or not it actually lasts for more than that.

In the new case, a taxpayer, who permanently resides in a suburb of Atlanta, Georgia, worked as a business consultant for numerous clients for his concierge CFO business. Many of the taxpayer’s clients required him to be on their business premises when they used his services.

In 2012, the taxpayer entered into a three-year contract with a firm in New Jersey. He was required to work at the New Jersey location for four days a week (Monday through Thursday). As a result, the taxpayer traveled back and forth from his residence on a weekly basis. Under the terms of the agreement, the taxpayer was reimbursed for certain expenses, but not his travel ones.

For the two tax years in question (2012 and 2013), the employment in New Jersey was the taxpayer’s sole source of income. The IRS denied the travel expense deduction claimed by the taxpayer for these two years. Eventually, the case went to court. 

End of the road: The Tax Court found that the New Jersey location was the taxpayer’s regular place of business. He spent some time working on administrative matters at his residence in Georgia, but the majority of the work was performed during his four days at the New Jersey location. Although the contract could have been terminated, as the taxpayer argued, this did not constitute a temporary assignment that could be expected to last for less than a year. Accordingly, the Tax Court disallowed the deduction for travel expenses.

To make matters even worse for this taxpayer, the Tax Court added an accuracy-related penalty to the tax deficiency. It noted that the taxpayer was a CPA with a master's degree in finance and prepared his own tax returns. His background and experience should have deterred him from reporting the travel expenses as a deduction.

Reminder: The IRS often challenges write-offs for travel expenses that appear to cross the tax law boundaries. Make sure your clients are prepared to support their position.

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By skinnyvinny
Apr 21st 2019 20:30 EDT

I could definitely see why TC imposed the accuracy-related penalty. As a CPA, the taxpayer should've known that his tax-home changed with the new contract. He simply wanted to see what he could get away with...

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