Columnist
Share this content

Travel Deduction Flunks Out in Tax Court

When you incur travel expenses, such the cost of transportation in your car, you can deduct the amounts attributable to business matters. But the IRS—as well as the Tax Court—won’t necessarily take your word that the business travel is legitimate. Unfortunately, some people learn this tax lesson the hard way.

Feb 6th 2020
Columnist
Share this content
IRS will modernize
eric1513_iStock_irsagent

When you incur travel expenses, such the cost of transportation in your car, you can deduct the amounts attributable to business matters. But the IRS—as well as the Tax Court—won’t necessarily take your word that the business travel is legitimate. Unfortunately, a college professor in a new case, Christensen, TC Memo. 2020-14, 21/15/20,  learned this tax lesson the hard way.

Background:  The tax code allows a taxpayer to deduct all “ordinary and necessary” business expenses paid or incurred during the tax year. Frequently, this includes travel expenses, such as transportation in a vehicle, for business-related matters. To qualify for deductions, you must show that a reported business expense was incurred primarily for business rather than personal reasons and that there was a proximate relationship between the expense and the business activities.

Conversely, a taxpayer’s personal travel expenses are not deductible. For example, “commuting expenses” back and forth from work are generally considered to be personal expenses, not deductible business expenses. However, you may deduct transportation between two different business locations (e.g. two branches of your company).

Under prior law, unreimbursed employee business expense, including travel expenses, were deducted as miscellaneous expenses, subject to a floor of 2 percent of adjusted gross income (AGI). However, the Tax Cuts and Jobs Act (TCJA) suspended miscellaneous expense deductions, without regard to the 2-percent-of-AGI floor, for 2018 through 2025.

The new case was decided under pre-TCJA law concerning the tax treatment of miscellaneous expenses, but the same basic principles as to deductible travel  still apply.

The main facts: The professor taught at a community college in North Carolina with two campuses about 24 miles apart. He lived approximately one mile from one of the campuses.

At the beginning of each workday, the professor traveled to the closest campus, irrespective of where he was working that day, in order to retrieve his class rosters. He also returned to this campus at the end of every day to lock the class rosters in his office. He made this trip regardless of which campus he began or ended his teaching day at.

The school didn’t require professors to store the class rosters in a secure place. The taxpayer in this case did so because he felt it was important to protect the personal information of his students that was included on the rosters (i.e., addresses, telephone numbers, and in some cases Social Security numbers). But the IRS denied the travel deductions.

Now the Tax Court has sided with the IRS. Reason: It said that the professor wasn’t required to lock up and unlock the student records each day. The decision to do this was his and of a personal nature. Therefore, the cost of the trips between the two campuses can’t be converted into employee business expenses. In addition, the Tax Court found discrepancies in the professor’s log for various other entries and noted that the reasons for claiming those other business trips were vague. 

There’s no word yet on whether the professor will appeal the Tax Court’s ruling. 

Related Articles

When Your Clients Won't Follow Your Processses

Why Retirees Should Plan Ahead

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.