Identifying the Tax Home

Determine where the "Tax Home" is so that one may compute and deduct if possible business transportation costs.

In order to deduct travel, transportation, lodging etc. a "Tax Home" must be established and identified.

In 1990, the IRS ruled that a taxpayer with one or more regular places of business may deduct daily commuting expenses incurred in going between the taxpayer's residence and a temporary work location.

Rev. Rul. 90-23, 1990-1 C.B. 28.

See Walker v. Comr., 101 T.C. 537 (1993), where the Tax Court held that a logger was entitled to deduct transportation expenses incurred in traveling to and from his residence to various cutting sites, concluding that the requirements of Rev. Rul. 90-23 were met because the logger's residence was a "regular place of business" and the various cutting sites were "temporary places of business."

However, in Rev. Rul. 94-47, 1994-2 C.B. 18, the IRS ruled that it would not follow the Tax Court's application of Rev. Rul. 90-23 in Walker.

See also PLR 9806007 (Employee's commuting costs to temporary work sites deductible as travel every two years considered too infrequent to be considered regular place of business).

Substantiation Requirements

Assuming a business travel expense is otherwise deductible, the taxpayer must satisfy strict substantiation rules as a further condition to deduction of the item. The purpose of the substantiation requirements for travel, meals and entertainment is to prevent taxpayers from disguising personal costs as business expenses. Under these rules, a taxpayer must substantiate by adequate records, or sufficient evidence corroborating his own statement, the amount of each travel and transportation expense, its time and place, its business purpose, and the taxpayer's business relationship to the persons entertained. If the taxpayer uses an automobile for local business transportation, he must provide additional information, including the amount and date of each separate expense for the auto, the amount and date of each business use of the auto and the total business and personal use, and the business purpose of each expense and use. An employee shifts responsibility for substantiating his business expenses to his employer by adequately accounting to the employer through a regular expense report, unless he seeks a deduction for unreimbursed employee business expense, the employer's accounting procedures are inadequate, or the taxpayer is a significant owner of the employer.

For expenses related to the substantive evidentiary requirements for cars refer to those pages GET THEM

Expenses Which Are Involved

Travel, lodging, airfare, parking, car mileage, interest on the automobile, and other travel related expenses are at issue.

In addition to the travel expenses are the temporary living expenses. Those will be the cost of meals and lodging while at the job site.

Commuting costs are personal and not deductible. Ordinary living costs are personal and not deductible. Therefore the definition of the taxpayer’s home is essential in making a decision regarding the deductibility of the costs incurred.

Away From Home – Its Importance and Problems/Challenges

To deduct travel expenses, you must first determine the location of your tax home.

Identifying the taxpayer's home is critical to a travel expense deduction because the Code permits a deduction for traveling expenses only while the taxpayer is "away from home." 89 However, the definition of home remains in dispute. The IRS 90 and the Tax Court 91 maintain that a taxpayer's tax home is his principal place of business. Two of the circuits accept this interpretation 92 but two other circuits define a taxpayer's home as his residence. 93 Four circuits take a middle position, holding that a person's tax home is determined from all the facts and circumstances. 94 The Supreme Court has had several opportunities to resolve this con- flict but thus far has failed to do so. 95

/Footnote/ 89 §162(a)(2). However, beginning in 1993, for these purposes, a taxpayer will not be treated as being temporarily away from home during any period of employment that exceeds 1 year in a single location. §162(a) (last sentence), added by 1992 Energy Act. See Notice 93-29, 1993-1 C.B. 311, amplified by Rev. Rul. 93-86, 1993-2 C.B. 71 (1-year rule applies for expenses incurred after Dec. 31, 1992 even if the taxpayer's period of employment away from home began before that date, but that expenses incurred on or before Dec. 31, 1992 may be deductible under § 162(a)(2)). There is an exception to the 1-year rule for certain federal employees engaged in criminal investigations, which includes the investigation, prosecution or for providing support services for such investigation or prosecution of, a federal crime. See the 1998 IRS Reform Act, P.L. 105-206, and the Taxpayer Relief Act of 1997, P.L. 105-34, amending §162(a), applicable to amounts paid or incurred with respect to taxable years ending after Aug. 5, 1997.

/Footnote/ 90 See, e.g., Rev. Rul. 75-432, 1975-2 C.B. 60; Rev. Rul. 74-291, 1974-1 C.B. 42; Rev. Rul. 60-189, 1960-1 C.B. 60, amplified by Rev. Rul. 83-82, 1983-1 C.B. 45, declared obsolete by Rev. Rul. 93-86, 1993-2 C.B. 71, with respect to expenses paid or incurred after 1992. See also TAM 9641003, where the IRS National Office advised that the cost of commercial airline tickets furnished by an employer to its employee for regular travel after his scheduled work shift between his family residence and his remote work site in another state is wages for which the employer is liable for federal income tax withholding and employment taxes. The National Office concluded that the cost of the flights was not a deductible business travel expense of the employee under §162(a)(2) but, rather, is a nondeductible personal expense under §262, and because the employee cannot deduct the cost of the travel, the cost of the tickets is a taxable fringe benefit includible in the employee's gross income under §61(a)(1).

Problems in identifying the taxpayer's home

The law requires and defines a tax home. This tax home is used to determine your base for deducting travel expenses. Generally, your tax home is your regular place of business or post of duty, regardless of where you maintain your family home. It includes the entire city or general area in which your business or work is located. If you have more than one regular place of business, your tax home is your main place of business. If you do not have a regular or a main place of business because of the nature of your work, then your tax home may be the place where you regularly live. See No main place of business or work, later.

Let us consider several typical fact patterns.

• An employee who accepts a temporary job assignment at a distant work site is permitted to deduct his travel expenses while away from home, whereas an employee whose distant job assignment is indefinite gets no travel expense deduction.

• An individual with several employers or places of business must determine which of the multiple work sites and residences is the home from which travel expenses are deductible.
• A married couple with each spouse working in a different location seeks, but does not receive, a deduction for the travel expenses of one spouse to join the other spouse.
• Some taxpayers are so itinerant that they are viewed as homeless and are denied any travel expense deductions.
• Special factors apply for military personnel, government officials, and foreign employees.

Note: The seemingly sharp division between defining the taxpayer's home as his business site versus his residence is rarely dispositive in these disputes. Under either view, the taxpayer is expected to live reasonably close to his principal business location. The taxpayer may then deduct travel expenses while temporarily away from home in the pursuit of business.

Whether the taxpayer's tax home is his business site or his residence, it includes the entire metropolitan area so that the taxpayer is not away from home unless he leaves his metropolitan area. 96

/Footnote/ 96 Schmidt v. Comr., T.C. Memo 1977-376. Rev. Rul. 190, 1953-2 C.B. 303, revoked by Rev. Rul. 74-453, suspended by I.R. 1884 (Sept. 7, 1977); Rev. Rul. 56-49, 1956-1 C.B. 152.

Example—Away From Tax Home

B is an actor who has lived in Colorado for 7 years. He is hired to star in a Broadway play under a 1-year contract. B can deduct his living expenses while in New York only if a reasonable person in his position would not abandon his home in Colorado and make his permanent residence in New York. 97

/Footnote/ 97 Six v. U.S., 450 F.2d 66 (2d Cir. 1971) (Involving Ethel Merman when she was engaged to star in the Broadway run of Gypsy).

Factors used to determine tax home. If you do not have a regular or main place of business or work, use the following three factors to see if you have a tax home.

1) You have part of your business in the area of your main home and use that home for lodging while doing business there.

2) You have living expenses at your main home that you duplicate because your business requires you to be away from that home.

3) You have not left the area in which both your traditional place of lodging and your main home are located; you have a member or members of your family living at your main home; or you often use that home for lodging.

If you meet all three factors, your tax home is the home where you regularly live, and you may be able to deduct travel expenses. If you meet only two of the factors, you may have a tax home depending on all the facts and circumstances. If you meet only one factor, you are a transient; each place you work becomes your tax home and you cannot deduct travel expanses.

You are single and live in Boston in an apartment you rent. You have worked for your employer in Boston for a number of years. Your employer enrolls you in a 12-month executive training program. You do not expect to return to work in Boston after you complete your training.

During your training, you do not do any work in Boston. Instead, you receive classroom and on-the-job training throughout the United States. You keep your apartment in Boston and return to it frequently. You use your apartment to conduct your personal business. You also keep up your community contacts in Boston. When you complete your training, you are transferred to Los Angeles.

You have not satisfied factor (1) because you did not work in Boston. You have satisfied factor (2) because you have duplicate living expenses. You also satisfy factor (3) because you do not abandon your apartment in Boston as your traditional home, you keep your community contacts, and you frequently return to live in your apartment. You have a tax home in Boston for travel expense deduction purposes.

You are an outside salesperson with a sales territory covering several states. Your employer's main office is in Newark, but you do not conduct any business there. Your work assignments are temporary, and you have no way of knowing where your future assignments will be located. You have a room in your married sister's house in Dayton. You stay there for one or two weekends a year; but you do no work in the area. You do not pay your sister for the use of the room.

You have not met any of the three factors listed earlier. You are a transient and have no tax home. Because you are never away from home, you cannot deduct the cost of your meals and lodging as travel expenses.

If you move from job to job, maintain no fixed home, and are not associated with any particular business locality, each place you work becomes your main place of business and your tax home. You cannot deduct your expenses for meals and lodging.

If you (and your family) live in an area outside your tax home (main place of work), you cannot deduct travel expenses between your tax home and your family home. You also cannot deduct the cost of meals and lodging while at your tax home. See Example 1 that follows.

If you are working temporarily in the same city where you and your family live, you may be considered as traveling away from home. See Example 2, below.

You are a truck driver and you and your family live in Tucson. A trucking firm that has its terminal in Phoenix employs you. At the end of your long runs, you return to your home terminal in Phoenix and spend one night there before returning home. You cannot deduct any of your travel costs in Phoenix because Phoenix is your tax home.

Your family home is in Pittsburgh, where you work 12 weeks a year. The rest of the year you work for the same employer in Baltimore. In Baltimore, you eat in restaurants and sleep in a rooming house. Your salary is the same whether you are in Pittsburgh or Baltimore.

Because you spend most of your working time and earn most of your salary in Baltimore, that city is your tax home. You cannot deduct any expenses you have for meals and lodging there. However, when you return to work in Pittsburgh, you are away from your tax home even though you stay at your family home. You can deduct the cost of your round trip between Baltimore end Pittsburgh. You can also deduct your part of your family's living expenses for meals and lodging while you are living and working in Pittsburgh.

Temporary vs. Indefinite Employment

A taxpayer who is temporarily employed at a distant site may deduct the cost of his meals and lodging while at the temporary job site because he is "away from home" while there. 98 In contrast, a taxpayer who is employed for an indefinite or uncertain time at a distant work site cannot deduct his living expenses at the distant job site even if it is inconvenient to move to the new location. 99

/Footnote/ 98 Michaels v. Comr., 53 T.C. 269 (1969), acq., 1973-2 C.B. 3.

/Footnote/ 99 Kroll v. Comr., 49 T.C. 557 (1968).

Note: The rationale underlying this distinction is that a taxpayer should not have to uproot his family for a temporary job, although he should move for a job of indefinite duration. 100 The taxpayer with a temporary job at a distant site incurs living expenses at the distant site which largely duplicate the costs of maintaining his permanent residence. Although the taxpayer with a distant indefinite job may also be duplicating his living expenses, this cost is considered a result of his personal choice to live at a distance from his job. 101

/Footnote/ 100 Tucker v. Comr., 55 T.C. 783, 786 (1971).

/Footnote/ 101 Peurifoy v. Comr., 358 U.S. 59 (1958), aff'd per curiam, 254 F.2d 483 (4th Cir. 1957).

Thus, to justify a deduction for living expenses while away from home at a distant work site, the taxpayer must establish the following facts:

• the taxpayer's travel away from home is temporary, rather than for an indefinite or uncertain period of time;

• the taxpayer maintains a fixed residence in the vicinity of his principal trade or business;

• the taxpayer incurs additional living expenses because he travels away from his home; and

• the taxpayer travels away from home for business, rather than personal, reasons. 102

These requirements are discussed below, together with the issue of whether the taxpayer temporarily working at a distant site can deduct his travel expenses when he returns home for a visit.

/Footnote/ 102 Rev. Rul. 60-189, 1960-1 C.B. 60, amplified by Rev. Rul. 83-82, 1983-1 C.B. 45, declared obsolete by Rev. Rul. 93-86, 1993-2 C.B. 71, with respect to expenses paid or incurred after 1992.

When a Temporary Job Becomes an Indefinite Job

Although the Code requires that deductible business travel expenses be incurred while away from home, the issue that has most frequently arisen concerning travel expenses during a temporary distant job is whether the job is indefinite, rather than temporary. For travel costs paid or incurred after 1992, if employment away from home in a single location is realistically expected to last (and does in fact last) for 1 year or less, the employment is temporary, in the absence of facts and circumstances indicating otherwise. If employment away from home in a single location is realistically expected to last for more than 1 year, or there is no realistic expectation that the employment will last for 1 year or less, the employment is indefinite, regardless of whether it actually exceeds 1 year. If employment away from home in a single location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to exceed 1 year, that employment will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that the taxpayer's realistic expectation changes. 103 Traveling expenses incurred by certain federal employees engaged in federal criminal investigations or prosecutions, or providing support services for such investigation or prosecution, are exempted from the rule requiring temporary work to be for a duration of one year or less. 104

/Footnote/ 103 §162(a) (last sentence), added by P.L. 102-486, §1938; Rev. Rul. 93-86, 1993-2 C.B. 71. For years before 1993, the IRS' position was that employment was temporary if it would forseeably terminate within a reasonably short period, generally no more than 1 year, from the beginning of the job. A job which was expected to, or which actually did, last more than 1 year was presumed to be indefinite. The taxpayer could rebut this presumption by demonstrating realistic facts indicating that the job would last less than two years and that he returned to his tax home after the job ended. The IRS viewed any expected or actual stay of two years or more as irrefutably indefinite. Rev. Rul. 83-82, 1983-1 C.B. 45, obsoleted by Rev. Rul. 93-86. E.g., Drum v. Comr., T.C. Memo 1994-433, aff'd in unpub. opin., No. 94-70850 (9th Cir. 1995) (Taxpayer, who owned home in Sacramento, failed to prove that he was employed for only temporary period where: (1) he agreed to work for a year in Los Angeles law firm; (2) he rented his Sacramento home pursuant to one year lease where lessee had option to remain on a month-to-month basis; and (3) despite temporarily moving back to Sacramento after his employment with law firm ended, he returned to purchase firm several months later and remained in Los Angeles).

/Footnote/ 104 The 1998 IRS Reform Act, P.L. 105-206, and the Taxpayer Relief Act of 1997, P.L. 105-34, amending §162(a), applicable to amounts paid or incurred with respect to taxable years ending after Aug. 5, 1997.

Example—Work Expected to, and Does, Last Less Than 1 Year

Taxpayer A is regularly employed in City 1. In 1993, A accepted work in City 2, which is 250 miles from City 1. A realistically expected the work in City 2 to be completed in 6 months and planned to return to City 1 at that time. In fact, the employment lasted 10 months, after which time A returned to City 1.

Since A realistically expected that the work in City 2 would last only 6 months, and it did in fact last less than 1 year, the City 2 employment is temporary and A's travel expenses paid or incurred in City 2 are deductible. 105

/Footnote/ 105 Rev. Rul. 93-86.

Example—Work Expected to Last More Than 1 Year, but Is Completed in Less Than 1 Year

Taxpayer B is regularly employed in City 1. In 1993, B accepted work in City 2, which is 250 miles from City 1. B realistically expected the work in City 2 to be completed in 18 months (and he planned to return to City 1 at that time), but in fact it was completed in 10 months.

B's employment in City 2 is indefinite because B realistically expected that the work in City 2 would last longer than 1 year, even though it actually lasted less than 1 year. Thus, B's travel expenses paid or incurred in City 2 are nondeductible. 106

/Footnote/ 106 Id.

Example—Work Originally Expected to Last Less Than 1 Year but Later is Expected to Last More Than 1 Year

Taxpayer C is regularly employed in City 1. In 1993, C accepted work in City 2, which is 250 miles from City 1. C realistically expected the work in City 2 to be completed in 9 months and C planned to return to City 1 at that time. After 8 months, however, C was asked to remain for 7 more months (for a total actual stay of 15 months).

C at first realistically expected that the work in City 2 would last only 9 months. However, due to changed circumstances occurring after 8 months, it was no longer realistic for C to expect that the employment in City 2 would last for 1 year or less. Therefore, C's employment in City 2 is temporary for 8 months, and indefinite for the remaining 7 months. Thus, C's travel expenses paid or incurred in City 2 during the first 8 months are deductible, but C's travel expenses paid or incurred thereafter are nondeductible. 107

/Footnote/ 107 Id.

A Fixed Residence

The taxpayer also must prove that he had a fixed residence so that he was "away from home" at the distant job site. The IRS requires the taxpayer to prove that he had a "regular place of abode in a real and substantial sense." 108 The IRS analyzes whether:

• the taxpayer has used the residence for lodging while performing work in its vicinity just before the distant job, and whether the taxpayer continues to maintain bona fide work contacts (job seeking, business, etc.) during the distant employment;
• the taxpayer incurs duplicate living expenses at the distant job site because his work requires him to be away from his residence; and
• the taxpayer either (a) has a family member (marital or lineal only) currently residing at the abode, or (b) continues to frequently use the residence as his lodging.

A temporary lack of work near the taxpayer's residence is an acceptable business reason for traveling away from home to a temporary job. 109 However, if the prospects for employment in the vicinity of the taxpayer's home are bleak, the taxpayer will be deemed to keep his residence for personal reasons rather than business reasons. 110 The IRS concedes that the taxpayer has a tax home from which he can be temporarily away if he meets all three tests above. If he satisfies only two of the tests, however, the IRS will closely scrutinize all of the facts to determine if the taxpayer has moved his tax home to the new location. Finally, the IRS conclusively presumes that the taxpayer has abandoned his old residence if he can only meet one or none of the tests. 111

/Footnote/ 108 Rev. Rul. 60-189, 1960-1 C.B. 60, as amplified by Rev. Rul. 83-82, 1983-1 C.B. 45, declared obsolete by Rev. Rul. 93-86, 1993-2 C.B. 71, with respect to expenses paid or incurred after 1992. This is the same issue which arises in the case of itinerant taxpayers who may have no tax home and thus may not have any deductible travel expenses. See Rev. Rul. 73-529, 1973-2 C.B. 37 and the discussion in ¶2310.01.E.4, below.

/Footnote/ 109 McPhayden v. Comr., T.C. Memo 1979-126.

/Footnote/ 110 Tucker v. Comr., 55 T.C. 783, 787 (1971). See Semock v. Comr., T.C. Memo 1994-382 (Taxpayer's residence is his tax home because he returned there during periods of temporary unemployment from temporary jobs).

/Footnote/ 111 Rev. Rul. 83-82, 1983-1 C.B. 45.

The courts examine similar factors but are somewhat more flexible in their approach. They examine the reasonably anticipated duration of the distant job, the degree of certainty that it will end in a reasonably short period, the strength of the taxpayer's ties (business, economic and family) with his residence, the amount of duplicate living expenses, and the cost of moving the taxpayer's family to and from the new work site. 112

/Footnote/ 112 Tucker v. Comr., 55 T.C. 783 (1971).

Duplicate Expenses

The likelihood that a taxpayer traveling away from home on business incurs living expenses that duplicate his at home costs has long been cited as a justification for the business travel expense deduction. 113 The courts do not agree, however, whether duplication of expenses is essential for a business travel expense deduction. 114 In any event, the probability that a business traveler will incur extra living costs is an important factor in determining deductibility of travel expenses, and the presence or absence of duplicate expenses may be dispositive in a close case. 115

/Footnote/ 113 See, e.g., U.S. v. Correll, 389 U.S. 299 (1967).

/Footnote/ 114 For cases holding that duplication is essential, see e.g., Rosenspan v. U.S., 438 F.2d 905, 906 (2d Cir.), cert. denied, 404 U.S. 864 (1971); Bochner v. Comr., 67 T.C. 824, 828 (1977); Hicks v. Comr., 47 T.C. 71 (1961). But see, e.g., Gustafson v. Comr., 3 T.C. 998 (1944), nonacq., 1973-2 C.B. 4. For a comparison involving itinerant taxpayers, see Misiewicz, "Maximizing Deductions Dependent on the Existence and Location of a Principal Residence," 11 Rev. Tax'n Indiv. 225 (1987).

/Footnote/ 115 See, e.g., Andrews v. Comr., 931 F.2d 132 (1st Cir. 1991).

Business Reasons for Travel

As with any business travel expense, a taxpayer can only claim a deduction if business necessity requires him to travel away from home to the temporary assignment. 116 Thus, the question is whether the job, not the taxpayer's lifestyle, requires the taxpayer to travel away from home for work. 117

/Footnote/ 116 Rev. Rul. 60-189, 1960-1 C.B. 60, amplified by Rev. Rul. 83-82, 1983-1 C.B. 45, declared obsolete by Rev. Rul. 93-86, 1993-2 C.B. 71, with respect to expenses paid or incurred after 1992.

/Footnote/ 117 Kasun v. U.S., 671 F.2d 1059, 1061 (7th Cir. 1982); Frederick v. U.S., 603 F.2d 1292, 1295 (8th Cir. 1979); Boone v. U.S., 482 F.2d 417, 419-20 (5th Cir. 1973).

Returning Home on Days Off

An employee who returns to his tax home from a temporary assignment on his days off may deduct the cost of his transportation expenses to and from the temporary job. In addition, the employee may deduct the cost of his meals and lodging while traveling to his tax home, but only to the extent such expenses do not exceed the costs for meals and lodging he would have incurred if he remained at the temporary job site. If the employee keeps his lodging at the temporary job site while he returns home for a visit, then he cannot get two lodging deductions and can only deduct his meal costs in addition to his away from home lodging. 118

/Footnote/ 118 Rev. Rul. 54-497, 1954-2 C.B. 75, superseded in part by Rev. Rul. 75-432, 1975-2 C.B. 75, and modified by Rev. Rul. 76-453, 1976-2 C.B. 86, [suspended by I.R. 1884 (Sept. 7, 1977)], Rev. Rul. 75-1 169, 1975-1 C.B. 59, and Rev. Rul. 63-145, 1963-2 C.B. 86.

Multiple Employers or Places of Business

Transportation expenses incurred to travel between two jobs, whether multiple work sites or employers are involved, generally are deductible. 119 Overnight meal and lodging costs are deductible only if the taxpayer travels to or from a secondary business location. 120 Travel expenses to the secondary, or minor, post of duty are deductible even if the taxpayer lives at the minor post so long as the expenses are properly attributable to the taxpayer's presence there in the actual performance of his business duties. 121 However, travel costs to or from the taxpayer's principal business site are not deductible because they are personal expenses. 122

/Footnote/ 119 Brown v. Comr., 13 B.T.A. 832 (1928). Rev. Rul. 63-82, 1963- 1 C.B. 33, modified by Rev. Rul. 76-453, suspended by I.R. 1884 (Sept. 7, 1977).

/Footnote/ 120 Jones v. U.S., 648 F.2d 1081 (6th Cir. 1981) (State justices could deduct travel expenses while in home district because required to work in both state capital and home district; state capital was tax home because 2/3 of work performed there, while home district was minor place of business). Rev. Rul. 75-432, 1975-2 C.B. 60.

/Footnote/ 121 Jones v. U.S., 648 F.2d 1081 (6th Cir. 1981). Rev. Rul. 55-604, 1955-2 C.B. 49.

/Footnote/ 122 O'Hara v. Comr., 6 T.C. 841 (1946).

One court held that a taxpayer who has two businesses in two states has only one "tax home," even if the taxpayer spends an equal amount of time at each job location. The court stated that where business necessity requires that a taxpayer maintain two places of abode, and thereby incur additional and duplicate business expenses, such duplicate expenses are a cost of producing income and should ordinarily be deductible. 123

/Footnote/ 123 Andrews v. Comr., 931 F.2d 132 (1st Cir. 1991) (Vacating Tax Court decision in T.C. Memo 1990-391, that taxpayer had two "tax homes" which precluded "away from home" deductions; case remanded for determination of which location was taxpayer's actual tax home).

Tests for principal business location

Main place of business or work

If you have more than one place of work, you should use the following factors to determine your main place of business or work:

1) The total time you ordinarily spend working in each area,

2) The degree of your business activity in each area, and

3) The relative amount of your income from each area.

The IRS distinguishes between the taxpayer's major and minor business location based on the facts and circumstances of each case. They consider the following factors to be the most important in identifying which post is major or minor:

• the total time the taxpayer ordinarily spends at each business post or employment location;

• the degree of the taxpayer's business activity in each area; and

• the proportion of business and income generated at each business site. 124

The first factor, the amount of time the taxpayer spends at each site, is usually the most significant. 125

/Footnote/ 124 Markey v. Comr., 490 F.2d 1249 (6th Cir. 1974). Rev. Rul. 54-147, 1954-1 C.B. 51, modified by Rev. Rul. 76-453, 1975- 2 C.B. 86, suspended by I.R. 1884 (Sept. 7, 1977).

/Footnote/ 125 Rev. Rul. 63-82, 1963-1 C.B. 33; Rev. Rul. 61-67, 1961- 1 C.B. 25; both as modified by Rev. Rul. 76-453, 1975-2 C.B. 86, suspended by I.R. 1884 (Sept. 7, 1977). See Andrews v. Comr., 931 F.2d 132 (1st Cir. 1991) (Length of time spent engaged in business at each location should ordinarily be determinative of which is taxpayer's "major post of duty").

Example—Tax Home (1)

N lives in Columbus, Ohio, and has business interests there including rental real estate, a consulting business, and a position with a local bank. However, N spends 5 days each week for 50 weeks each year in Detroit performing consulting services. N earns more money in Detroit than in Columbus. Even though N maintains her residence and has some business interests in Columbus, Detroit is her tax home because she spends more time there and derives more income from Detroit. 126

/Footnote/ 126 Markey v. Comr., 490 F.2d 1249 (6th Cir. 1974). Accord Folkman v. U.S., 615 F.2d 493 (9th Cir. 1980).

Example—Tax Home (2)

O lives in Boston and earns $40,000 per year as an executive in a manufacturing company. O also earns $80,000 per year in New York City where he operates a sales agency. Even though O earns more money in New York, his tax home is in Boston because he spends more time and lives in Boston. Therefore, O can deduct his travel expenses to New York City, including his meals and lodging. 127

/Footnote/ 127 Sherman v. Comr., 16 T.C. 332 (1951), acq., 1951-2 C.B.

Example—Tax Home (3)

P is an airline stewardess who lives in Colorado and has a small interior decorating business there. P's flights originate from Dallas and most of her income is attributable to her position as a stewardess. P's tax home is Dallas because she spends most of her time and derives most of her income there. P may not deduct her living costs while in Dallas. 128 P can deduct the cost of transportation between Colorado and Dallas, but only if she must travel to Colorado to perform her interior design services, rather than for personal reasons, such as to visit her family. 129 P will have a difficult time proving that she travels to Colorado primarily to service her interior design business, from which she derives little income, rather than for personal reasons. 130

/Footnote/ 128 Kennedy v. Comr., T.C. Memo 1980-310.

/Footnote/ 129 Matteson v. Comr., 514 F.2d 43 (8th Cir. 1975).

/Footnote/ 130 See, e.g., Mazzotta v. Comr., 57 T.C. 427 (1971), aff'd per curiam, 465 F.2d 1399 (2d Cir. 1972). But see, e.g., Boyer v. Comr., 69 T.C. 521, 540-42 (1977), acq. 1978-2 C.B. 1; Muhl v. Comr., T.C. Memo 1986-309.

Married Couple Working in Different Locations

Neither spouse may deduct living expenses if the couple is employed or conducts business at separate and distant locations. Each spouse is deemed to have a tax home at his or her principal business site. Furthermore, travel expenses incurred to visit or reside at the other spouse's location are incurred for personal, rather than business, reasons. Thus, transportation costs in commuting between the work sites and living expenses while away from the couple's tax homes are not deductible. 131 Filing a joint return does not help the couple change this result, 132 nor are state laws relating to domicile relevant. 133

/Footnote/ 131 Hantzis v. Comr., 638 F.2d 248 (1st Cir. 1981), cert. denied, 452 U.S. 962 (1981).

/Footnote/ 132 Chwalow v. Comr., T.C. Memo 1971-185, aff'd per curiam, 470 F.2d 475 (3d Cir. 1972).

/Footnote/ 133 Hammond v. Comr., 20 T.C. 285 (1953), aff'd, 213 F.2d 43 (5th Cir. 1954).

Example—Separate Tax Homes

R and S own a ranch in Lockhart, Texas, which R operates. S is a school teacher in Austin, Texas, and is required, as a condition of her job, to maintain an Austin address. R lives with S in Austin and drives every day to work at the ranch. R's tax home is in Lockhart and he cannot deduct the cost of traveling to the ranch because his trips "away from home" to live in Austin are a consequence of his personal, rather than business, needs. If S must travel to Lockhart to tend the ranch while R is ill, then she can deduct her travel expenses to work at her minor post of duty. 134

/Footnote/ 134 Foote v. Comr., 67 T.C. 1 (1976).

Expenses for the Production of Income

Travel expenses that do not qualify as business expenses are deductible if they are ordinary and necessary costs incurred: for the production or collection of income; for the management, conservation, or maintenance of property held for the production of income; or in connection with the determination, collection, or refund of any tax. 301 No expense is deductible if it is for personal, family, or living purposes. 302 Nor can a taxpayer deduct any item which is a capital cost, i.e., if it contributes to an asset likely to last for more than one year. 303

/Footnote/ 301 §212.

/Footnote/ 302 §262. See, e.g., Shiosaki v. Comr., 475 F.2d 770 (9th Cir. 1973), cert. denied, 414 U.S. 830 (1973).

/Footnote/ 303 §263(a)

Generally, the same criteria determine whether an expense is ordinary and necessary for an investment activity as for a business activity. 304 An investment travel expense is not "ordinary and necessary," however, unless the taxpayer has an existing interest or right to income, or a proprietary or possessory interest in income-producing property. 305

/Footnote/ 304 Regs. §1.212-1(d). See discussion of "ordinary and necessary" business expenses at ¶2310.01.B, below.

/Footnote/ 305 Weinstein v. U.S., 420 F.2d 700 (Ct. Cl. 1970)

Example—Income-Producing v. Investment Property

L, an accountant, travels to the Cannes Film Festival and several other locations in Europe to explore the general possibility of investing in European films. L has no prior experience in film investments. L cannot deduct his European travel costs as investment expenses because the costs are incurred in preparation for acquiring investment property rather than to acquire or maintain income-producing property. 306

/Footnote/ 306 Rev. Rul. 55-237, 1955-1 C.B. 317.

A travel or transportation expense incurred in connection with the production of income is subject to the same requirements and limits as a similar business expense, except that it need not be incurred in pursuit of a trade or business. 307

/Footnote/ 307 §212. Bingham's Trust v. Comr., 325 U.S. 365 (1945).

Note: It is preferable to classify a travel or transportation expense as a trade or business expense when possible. Except for employees, business travel expenses are deductible above the line, i.e., they are adjustments to gross income in calculating adjusted gross income. 308 Investment travel expenses, except for costs relating to rental or royalty property, are deductible only as itemized deductions. 309 Thus, most investment expenses are deductible only to the extent that they, together with other miscellaneous itemized deductions, exceed 2% of the taxpayer's adjusted gross income. 310 In any event, the costs of all meals and entertainment incurred in connection with investment activities are subject to the 50% reduction rule. 311

/Footnote/ 308 §62(a)(1), §67.

/Footnote/ 309 §62(a)(4), §211, §212.

/Footnote/ 310 §67. See ¶2310.03.C, below, for further discussion of the 2% floor under miscellaneous itemized deductions.

/Footnote/ 311 §274(n), as amended by P.L. 103-66, §13209. The reduction rule is 20% for taxable years beginning before Jan. 1, 1994.

Note: An important issue for any investment expense is whether the activity is engaged in for profit. If not, the taxpayer is precluded from deducting the item under the hobby loss rules. 312

/Footnote/ 312 §183.

Expenses relating to investment seminars, i.e., those that concern tax or financial planning for an investor, are not deductible. 313 However, this rule does not apply if the taxpayer attends the meeting in pursuit of his trade or business. 314

/Footnote/ 313 §274(h)(7).

/Footnote/ 314 Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986, p. 63.

Example—Investment Seminar

M attends a seminar sponsored by National Brokers, Inc., during which M and other brokerage clients discuss stock market strategies with the broker's analysts and company representatives. N, a salesman with National Brokers, also attends the meeting which is held on board a cruise ship. M cannot deduct any part of the cost for this investment seminar. 315 N can deduct his travel costs relating to the seminar as a business expense, 316 subject to: the cruise convention rules; 317 the 50% reduction for meals and entertainment; 318 and, if the cost is an unreimbursed employee expense, the 2% floor on miscellaneous itemized deductions. 319

/Footnote/ 315 §274(h)(7).

/Footnote/ 316 §162(a)(2).

/Footnote/ 317 §274(h)(2), (5). See ¶2310.01.F.3, above, for discussion of the cruise convention rules.

/Footnote/ 318 §274(n). See ¶2310.03.B, below, for discussion of the percentage reduction rule.

/Footnote/ 319 §67. See ¶2310.03.C, below, for discussion of the 2% floor on miscellaneous itemized deductions.

Investors whose travel expenses are not disallowed by the investment seminar prohibition may be able to deduct their investment travel expenses if:

• the trip is part of a systematic investigation of business operations;
• the costs are reasonable relative to the size of the investment and the information to be learned by the trip;
• there is no personal motive for the trip; and
• there is a practical result of the trip. 320

/Footnote/ 320 Kinney v. Comr., 66 T.C. 122 (1976).

Example—Investor Travel Costs

O, an unpaid director of a publicly traded company, holds 4% of the company's stock which represents 20% of O's net worth and is worth $2 million. When the stock value declines, O incurs travel costs of $10,000 to attend a directors' meeting to express her concern over various management actions. O later sells her stock for a $1 million gain. O may deduct her investment travel expenses because: she incurred the travel costs primarily to protect the value of her investment rather than to protect other stockholders or the corporation; the expenses are reasonable in amount compared with the value of O's investment; the travel costs are not for personal purposes; and O achieved the desired result. 321

/Footnote/ 321 Stranahan v. Comr., T.C. Memo 1982-151.

 Rev. Rul. 94-47, 1994-2 C.B. 18

Rev. Rul. 53-190 and Rev. Rul. 90-23 amplified and clarified.

This ruling sets forth the principles the Service will apply to determine the deductibility of daily transportation expenses incurred by a taxpayer in going between the taxpayer's residence and any work location. Rev. Ruls. 53-190 and 90-23 amplified and clarified.

Rev. Rul. 94-47

ISSUE

Under what circumstances are daily transportation expenses incurred by a taxpayer in going between the taxpayer's residence and a work location deductible under Section 162(a) of the Internal Revenue Code?

LAW AND ANALYSIS

Section 162(a) allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 262, however, provides that no deduction is allowed for personal, living, or family expenses.

A taxpayer's costs of commuting from the taxpayer's home to the taxpayer's place of business or employment are nondeductible personal expenses under Sections 1.162-2(e) and 1.262-1(b)(5) of the Income Tax Regulations. However, the costs of going from one business location to another business location generally are deductible under Section 162(a). Rev. Rul. 55-109, 1955-1 C.B. 261.

Section 280A(c)(1)(A) provides, in part, that a taxpayer may deduct expenses for the business use of the portion of the taxpayer's personal residence that is exclusively used on a regular basis as the principal place of business for any trade or business of the taxpayer. In Curphey v. Commissioner, 73 T.C. 766 (1980), the Tax Court held that daily transportation expenses incurred in going between an office in a taxpayer's residence and other work locations were deductible where the home office was the taxpayer's principal place of business within the meaning of Section 280A(c)(1)(A) for the trade or business conducted by the taxpayer at those other work locations. The court stated that "[w]e see no reason why the rule that local transportation expenses incurred in travel between one business location and another are deductible should not be equally applicable where the taxpayer's principal place of business with respect to the activities involved is his residence." 73 T.C. at 777-78 (emphasis in original). Implicit in the court's analysis in Curphey is that the deductibility of daily transportation expenses is determined on a business by business basis.

Rev. Rul. 53-190, 1953-2 C.B. 303, provides a limited exception to the general rule that the expenses of going between a taxpayer's residence and work are nondeductible commuting expenses. Rev. Rul. 53-190 deals with a taxpayer who lives and ordinarily works in a particular metropolitan area but who is not regularly employed at any specific work location. In such a case, the general rule is that daily transportation expenses are not deductible when paid or incurred by the taxpayer in going between the taxpayer's residence and a temporary work site inside that metropolitan area because that area is considered the taxpayer's regular place of business. However, Rev. Rul. 53-190 holds that daily transportation expenses are deductible business expenses when paid or incurred in going between the taxpayer's residence and a temporary work site outside that metropolitan area.

Rev. Rul. 90-23, 1990-1 C.B. 28, expands the holding of Rev. Rul. 53-190 and holds that, for a taxpayer who has one or more regular places of business, daily transportation expenses paid or incurred in going between the taxpayer's residence and temporary work locations are deductible business expenses under Section 162(a) regardless of the distance. Rev. Rul. 90-23 defines a temporary work location as any location at which the taxpayer performs services on an irregular or short-term (i.e., generally a matter of days or weeks) basis.

Taken together, the holdings in Rev. Rul. 53-190 and Rev. Rul. 90-23 are designed to provide a reasonable and administrable set of rules to address the variety of situations in which taxpayers incur daily transportation expenses in going between their residences and their places of work.

In Walker v. Commissioner, 101 T.C. 537 (1993), the Tax Court applied Rev. Rul. 90-23 to permit a taxpayer to deduct daily transportation expenses incurred in going between the taxpayer's residence and numerous temporary work sites. The court allowed a deduction for these expenses based on its interpretation of Rev. Rul. 90-23, notwithstanding that the taxpayer's recurring work at the residence, while sufficient in the court's view to make that location a regular place of business, was not sufficient to qualify the residence as a principal place of business within the meaning of Section 280A(c)(1)(A) . The court indicated, however, that absent Rev. Rul. 90-23, the taxpayer's inability to establish that the residence was the taxpayer's principal place of business would have rendered nondeductible the taxpayer's daily transportation expenses incurred in going between the taxpayer's residence and other work locations.

The Service will not follow the Tax Court's decision in Walker allowing a deduction for these daily transportation expenses based on Rev. Rul. 90-23. In particular, the Service disagrees both with (1) the court's interpretation in Walker that Rev. Rul. 90-23 applies to a situation where the taxpayer's only regular place of business is located at the taxpayer's residence, and (2) the court's treatment of Rev. Rul. 90-23 as a concession to the taxpayer by the Service. Rev. Rul. 90-23 neither involves nor contemplates a situation such as that presented in Walker. Rather, Rev. Rul. 90-23 only provides a deduction for daily transportation expenses incurred in going between a taxpayer's residence and a temporary place of business where the taxpayer also has a regular place of business that is not located at the taxpayer's residence.

In determining whether daily transportation expenses incurred in going to and from a place of business located at the taxpayer's residence are more properly treated as personal commuting expenses (nondeductible under Sections 1.162-2(e) and 1.262-1(b)(5)) or as ordinary and necessary business expenses (deductible under Section 162(a)), great weight must be given to the inherently personal character of a taxpayer's residence and trips to and from that residence. See Mazzotta v. Commissioner, 57 T.C. 427 (1971). If an office in the taxpayer's residence satisfies the principal place of business requirements of Section 280A(c)(1)(A), then the business activity there is so central to the taxpayer's business as to overcome the inherently personal nature of the residence and the daily transportation expenses incurred in going between the residence and other work locations in the same trade or business. See Curphey; see also Wisconsin Psychiatric Services v. Commissioner, 76 T.C. 839 (1981). In these circumstances, the residence is considered a business location for purposes of Rev. Rul. 90-23. If an office in the taxpayer's residence does not satisfy the principal place of business requirements of Section 280A(c)(1)(A), then the business activity there (if any) is not sufficient to overcome the inherently personal nature of the residence and the daily transportation expenses incurred in going between the residence and other regular work locations. See Green v. Commissioner, 59 T.C. 456 (1972); Fryer v. Commissioner, T.C. Memo. 1974-77. In these circumstances, the residence is not considered a business location for purposes of Rev. Rul. 90-23.

HOLDING

In general, daily transportation expenses incurred in going between a taxpayer's residence and a work location are nondeductible commuting expenses. However, such expenses are deductible under the circumstances described in paragraph (1), (2), or (3) below.

(1) A taxpayer may deduct daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works. However, unless paragraph (2) or (3) below applies, daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location within that metropolitan area are nondeductible commuting expenses.

(2) If a taxpayer has one or more regular work locations away from the taxpayer's residence, the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location in the same trade or business, regardless of the distance.

(3) If a taxpayer's residence is the taxpayer's principal place of business within the meaning of Section 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 53-190, 1953-2 C.B. 303, and Rev. Rul. 90-23, 1990-1 C.B. 28, are amplified and clarified.

DRAFTING INFORMATION

The principal author of this revenue Ruling is Leonard H. Friedman of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue Ruling, contact Mr. Friedman on (202) 622-4920 (not a toll-free call).

Private Letter Ruling - Favorable for Taxpayer

LTR 9806007

Section 162(a)(2) -- Travel Expenses

UIL Number(s) 0162.00-00

Summary

Travel Between Home and Temporary Work Location Are Deductible

The Service has ruled that transportation expenses incurred by an individual traveling between his residence and a work location are deductible because the work location is temporary.

An employee spends about 75 percent of his time working at various sites that are not business locations of the employer. The employee spends about two to three weeks, once every two years, at each nonbusiness location.

The Service said that nonbusiness locations qualified as temporary work locations and as such the travel expenses between the employee's home and sites were deductible under section 162(a).

Full Text

Date: November 6, 1997

Refer Reply To: CC:DOM:IT&A:2 -- PLR-111532-97

LEGEND:

Taxpayer A = * * *

Taxpayer A's TIN = * * *

B = * * *

K = * * *

L = * * *

City X = * * *

City Y = * * *

State Z = * * *

Dear * * *

[1] This is in response to your request dated June 13, 1997, for a ruling that certain local transportation expenses are deductible.

FACTS

[2] A is employed as a K by B. A spends approximately 75% of his working days at Ls, which are not business locations of B and are located in various cities in Z. A works at each L for approximately two to three weeks once every two years.

[3] In 1996, A spent 26.7% of his working days at B's field office located in Y. In the first half of 1997 A spent 25% of his working days at Y. While at B's field office in Y, A prepares for assignment to an L, reviews information related to work by other Ks at an L, or prepares reports concerning a completed assignment to an L.

[4] A resides in X, which is more than 60 air miles from Y. X and Y are both located in Z, but are in different metropolitan areas. For the most part, X and the Ls are located in different metropolitan areas.

[5] A uses his personal vehicle to travel between his home in X and the Ls. B reimburses A (as well as other Ks) for A's automobile expenses at the mileage rate specified in Rev Proc. 96-63, 1996-2 C.B. 420. B does not reimburse A for using his personal automobile in going between his residence in X and B's field office in Y.

LAW

[6] Section 162(a) of the Internal Revenue Code allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business, including daily local business transportation expenses. Section 262, however, provides that no deduction is allowed for personal, living, or family expenses.

[7] In general, a taxpayer's daily transportation expenses incurred in going between the taxpayer's home and a work location have long been considered nondeductible personal expenses. See sections 1.162-2(e) and 1.262-1(b)(5) of the Income Tax Regulations and Rev. Rul. 94-47, 1994-2 C.B. 18. However, the costs of daily transportation in going from one business location to another business location generally are deductible under section 162(a). Rev. Rul. 55-109, 1955-1 C.B. 261.

[8] Rev. Rul. 190, [sic] 1953-2 C.B. 302, holds that, if a taxpayer has no regular work location, the entire metropolitan area in which the taxpayer normally is employed is considered the taxpayer's regular place of employment. Such a taxpayer may deduct daily transportation expenses only between the taxpayer's residence and a temporary work location outside the metropolitan area.

[9] However, a taxpayer who has one or more regular work locations away from the taxpayer's residence may deduct daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location in the same trade or business, whether or not the temporary work location is in the same metropolitan area as the taxpayer's regular work location. Rev. Rul. 90-23, 1990-1 C.B. 28; Rev. Rul. 94-47.

[10] Whether a work location is temporary or regular depends on the particular facts and circumstances. Rev. Rul. 94-47, citing Rev. Rul. 90-23, defines a "temporary" work location as one at which the taxpayer performs services on an irregular or short-term (i.e. generally a matter of days or weeks) basis. Rev. Rul. 90-23 indicates that a taxpayer may be considered as working or performing services at a particular location on a regular basis whether or not the taxpayer works or performs services at that location every week or on a set schedule. Thus, for example, daily transportation expenses incurred by a doctor in going between the doctor's residence and one or more offices, clinics, or hospitals at which the doctor works or performs services on a regular basis are nondeductible commuting expenses.

ANALYSIS

[11] In 1996 and the first half of 1997, A spent 25-27% of his working days at Y. We conclude that Y is a regular place of business of A. Since A has a regular place of business, A may deduct daily transportation expenses incurred between his residence at X and temporary work locations, whether or not the temporary work locations are located within the same metropolitan area as X or Y.

[12] In general, whether a work location is temporary or regular depends on two circumstances: (1) whether the taxpayer works at the location repeatedly, and (2) the amount of time the taxpayer spends at the work location on an occasion. A work location may be regular if the taxpayer works at the location repeatedly, even if infrequently, or if the taxpayer's assignment at the location is not short term.

[13] Every two years, A works for two to three weeks at each L. We conclude that a two year interval is too infrequent to consider the work location a "regular" place of business. Additionally, the work duration of two to three weeks meets the definition of "temporary" ("a matter of days or weeks") in Rev. Rul. 94-47. Therefore we conclude that each L is a temporary work location of A.

HOLDING

[14] A's daily transportation expenses between his residence in X and each L are deductible under section 162(a) (subject to the 2% floor of section 67(a)).

[15] A copy of this letter ruling must be attached to any income tax return to which it is relevant. We enclose a copy for that purpose.

[16] This ruling is directed only to the taxpayer requesting it. Section 6110(j)(3) of the Internal Revenue Code provides that it may not be used or cited as precedent.

Sincerely,

Assistant Chief Counsel

(Income Tax & Accounting)

By: George Baker

Assistant to the Branch Chief

Branch 2

cc: * * *

Locations

Table of Circumstances

*** These three items are looked at be the Internal Revenue Service to define your tax home. If you meet all three factors, your tax home is the home where you regularly live, and you may be able to deduct the temporary expenses. If you meet only two of the factors, you may have a tax home depending on all the facts and circumstances. If you meet only one factor, you are a transient; each place you work becomes your tax home and you cannot deduct travel or temporary living expenses.

Husband resides at ________________

Wife resides at _______________

Tax Home Tests For __________________