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Tax Court Maps Out Deductions Away From Tax Home

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Your  client's “tax home” is the entire general vicinity of their principal place of business, regardless of where they reside. However, if they have no permanent principal place of business, their primary residence may be their tax home.

Mar 11th 2022
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There’s no place like your tax home. In a new Tax Court case, Harwood, TC Memo 2028-8, 2/15/22, a taxpayer was able to deduct most of his travel expenses while he was away from home on temporary assignments.

If you’re away on a temporary asignment, you are considered to be away from home for the entire period you’re away from your main place of work. Thertfore, you can deduct your travel expenses, assuming you otherwise qualify.

Generally, a temporary assignment in a single location is one that is realistically expected to 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. Thus, you can’t deduct your travel expenses while you’re there.

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 one year. Similarly, you may be allowed to deduct travel expenses between home and temporary work locations outside the metropolitan area where you normally live and work.

Facts of the new case: The taxpayer, a resident of Washington, worked as a steamfitter on construction projects in Washington and Oregon. He was a member of the local union. During the tax years in question, the taxpayer worked on numerous short-term projects.

On some of these jobs, he stayed overnight during the workweek, incurring lodging expenses. On others, he went back and forth the same day. And on still others, he did both. For instance, for two months in 2016 he drove back and forth at first but then later stayed in a personal trailer during the workweek for the next few months.

The IRS disallowed a portion of the travel and vehicle expenses claimed by the taxpayer. It argued that he had no business reason for residing where he did other than for personal reasons.

Tax outcome: The Tax Court determined that the taxpayer’s principal residence was his tax home. Because the jobs assignments were temporary, the taxpayer had sufficient business reason for living where he did, rather than moving his family to other parts of the region where the temporary work sites were located. Thus, the lodging expenses incurred while he was away from home are deductible.

In addition, the taxpayer adequately substantiated most of the vehicle expenses and is entitled to deduct those amounts. He maintained a log for recording the date and odometer readings of the vehicle used for business travel and provided the time, place and business purpose for meal expenses.

However, in a somewhat surprising twist, the Tax Court denied deductions for vehicle expenses incurred on the trips that the taxpayer went back and forth on the same day. It was characterized as nondeductible commuting.

Caution: This area of the tax law is fraught with perils. Make sure that your clients follow the IRS roadmap for deductions.

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