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Tax Court: Working From Home but Claiming Travel Deductions

Oct 11th 2017
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For federal income tax purposes, your tax home isn’t necessarily “where you lay your hat.” As evidenced by a new case, Barrett, TC Memo 2017-195, 10/2/17, the tax rules define your “tax home” as the general area of your main workplace. This could have a major impact on travel deductions claimed while you’re away from home on business.

In some instances, you may do work at various locations, without have a regularly established place of business. The determination of your tax home is then based on several factors, including the time spent in each place, the work performed at each place and the income generated at each place. If you’re self-employed, your tax home is often your actual home, but the IRS may dispute this.

In the new case, the taxpayer resided in Las Vegas, where he also owned several rental properties. His primary source of income came from his job as a video producer for the American Israel Public Affairs Committee (AIPAC).

The taxpayer began working with AIPAC in 1995. He occasionally performed services for other firms, but didn’t receive any income for such services during the tax years at issue. Video production includes writing scripts and reviewing footage, much of which he did out of an office in his Las Vegas home. Interviews relating to the videos were conducted in various locations around the world.

Before 2007, the taxpayer produced videos for AIPAC using studio facilities in Las Vegas, but then AIPAC built a new building in Washington D.C. From that point on, the taxpayer was required to travel to D.C. to use the editing facilities and other resources at the building. He continued to write scripts and perform pre-production services in his Las Vegas home.

The average duration of the taxpayer’s stays in D.C. was two weeks. Initially he stayed at hotels, but from 2007 through June 2013 he rented a condominium apartment because it was more cost-efficient. AIPAC reimbursed the taxpayer for some meals and expenses when he was in D.C.

The taxpayer reported income from AIPAC of $132,810 for 2011; $121,328 for 2012; $75,695 for 2013; and $63,182 for 2014. On Schedules C filed for 2011, 2012, and 2013, he claimed deductions for travel, meals, and entertainment expenses of $55,383; $49,882; and $26,363; respectively. On an untimely return submitted for 2014, he reported travel, meals, and entertainment expenses of $24,502.

The IRS challenged the deductible amounts claimed for travel to D.C., but the Tax Court ruled in favor of the taxpayer. It said that his tax home was in Las Vegas.

The Court emphasized that the taxpayer performed substantial services for AIPAC in Las Vegas, traveled to D.C. only to complete the production process, was required to be in D.C. only a few weeks at a time and had other income-producing activities in the Las Vegas area.

It rejected the IRS’s argument that D.C. was the tax home because his long-time work for AIPAC was “permanent” and produced the bulk of his total income for the years in issue. In doing so, the Court ruled that the work in D.C. was temporary, since it was sporadic and lasted for short periods totaling less than half a year.

This may be a critical tax issue for clients who travel extensively and regularly work out of different business locations. Make sure they are on firm ground for claiming travel deductions.

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