A taxpayer is treated as traveling away from home if his duties require him to be away from the general area of his tax home for substantially longer than an ordinary day’s work and he needs to sleep or rest (i.e., the “sleep or rest” rule) to meet the demands of his work while away from home. The IRS’s sleep or rest rule was upheld by the Supreme Court in U.S. v. Correll, 389 U.S. 299 (1967).
In order to determine whether an expense is incurred away from home, it is necessary to determine the location of the taxpayer’s (Realtor, Broker, or Real Estate Professional) home (Coombs v. Commissioner, 608 Federal 2d 1269 (9th Circuit 1979), affirming in part, reversing in part, 67 Tax Court 426 (1976)). In the context of Code Section 162(a)(2), a taxpayer’s home generally refers to the area of a taxpayer’s principal place of employment, whether or not in the vicinity of the taxpayer’s personal residence (Daly v. Commissioner, 72 Tax Court 190 (1979), affirmed, 662 Federal 2d 253 (4th Circuit 1981); Kroll v. Commissioner, 49 Tax Court 557 (1968)). Accordingly, when a taxpayer’s principal place of employment changes but the taxpayer does not change the location of his permanent personal residence, the taxpayer’s home for purposes of Code Section 162 generally changes to the taxpayer’s new principal place of business (Collodi v. Commissioner, Tax Court Summary 2016-57).
In Barry v. Commissioner, 435 Federal 2d 1290 (1st Circuit 1970), affirming 54 Tax Court 115, the taxpayer lived in New Hampshire and had clients in Massachusetts, Connecticut, and Rhode Island. He serviced these clients by making one-day trips to their respective places of business, leaving home around 6:30 am and returning around 10:30 pm. He never stayed overnight. Instead he rested and sometimes slept in his car at rest stops near the client. The Tax Court denied his deduction for meal expenses, saying the type of sleep he engaged in was not the type that would ordinarily add to expenses. Rather it was the sort of rest that anyone can, at any time, without special arrangement and without special expense, take in his own car or office.
In Unger v. Commissioner, Tax Court Memo. 1986-64, the taxpayer was a truck driver and he took safety breaks on approximately one-fifth of his business trips. He started his trips in the evening and finished the next day. The safety breaks consisted of the taxpayer resting or sleeping at the wheel of his truck for anywhere from less than an hour to two-and-one-half hours. The Tax Court rejected his argument that he was away from home overnight and concluded that he failed to show that the safety breaks were required for substantial sleep or rest. The court noted that the taxpayer did not show that the trips where he took safety breaks involved greater hours or further destinations than those where he did not take any breaks.
Thus, merely working overtime or at a great distance from the taxpayer’s residence does not create deductible travel expenses if the taxpayer returns home without spending the night or stopping for substantial sleep or rest.
In 2017, a Freddy Smuckatelli, a railroad conductor regularly rents a hotel room near a railroad station where he sleeps and eats during a five-hour layover during an 18-hour workday. He is considered to be away from home.
Joey Bagadonuts is a self-employed real estate professional and has to travel from Washington D.C. to New York to work on a project. He leaves home at 11:00 am on Monday, with plans to return home the same day. He is unable to complete the project on Monday, so he spends the night in New York. After completing the project the next day, he returns to D.C. by 10:30 am. Even though Jason had not planned to spend the night and is gone for less than 24 hours, Joey has met the “away from home” rule because he spent the night away from his tax home on business.
A taxpayer’s tax home is the vicinity of the taxpayer’s regular or principal place of business, regardless of where his family home is maintained (Mitchell v. Commissioner, 74 Tax Court 578 (1980); Daly v. Commissioner, 662 Federal 2d 253 (4th Circuit 1981), affirming 72 Tax Court 190 (1979)).
In Liljeberg v. Commissioner, 148 Tax Court No. 6 (2017), affirmed, 2018 PTC 376 (D.C. Circuit 2018), the Tax Court held that nonresident alien individuals working summer jobs obtained through the U.S. Department of State’s Summer Work Travel Program were not “away from home” for purposes of Code Section 162(a)(2), and therefore could not deduct travel and living expenses they paid in connection with the program.
If a taxpayer has more than one regular place of business, his tax home is his main place of business, which is determined based on the time spent, the level of business activity, and the income earned at each place. Thus, for example, an attorney who maintained practices in Minnesota and Washington, D.C., and who earned most of his income from his Washington, D.C. practice and spent more than 50 percent of his total working days in Washington, D.C., was not “away from home” while in Washington, D.C., and therefore was not allowed to deduct his lodging and travel expenses (Soboyede v. Commissioner, Tax Court Summary 2021-3). If a taxpayer does not have any regular place of business because of the nature of his work, his tax home is the place where he regularly lives (i.e., his family home) (Johnson v. Commissioner, 115 Tax Court 210 (2000)). A taxpayer must have a tax home from which to be away in order to deduct expenses for job-related travel away from home. The fact that a taxpayer’s home happens to be owned by his parents makes it no less his home (Henderson v. Commissioner, 143 Federal 3d 497 (9th Circuit 1998)).
However, in McClellan v. Commissioner, Tax Court Memo. 2014-257, the Tax Court held that a couple performing consulting services throughout the Northeast could deduct lodging expenses arising from a New York City apartment because they had no principal place of employment and their tax home was their permanent residence in Mississippi. In reaching this conclusion, the court pointed to the fact the couple provided services to multiple businesses on a temporary basis and that the taxpayers were required to share the New York apartment with other independent contractors.
When a taxpayer has no principal place of work, and when the taxpayer maintains a personal residence or family home remote from his temporary jobsite, the taxpayer’s home may be treated as his tax home if:
(1) the taxpayer incurs duplicate living expenses while traveling and maintaining the home;
(2) the taxpayer has personal and historical connections to the home; and
(3) the taxpayer has a business justification for maintaining the home (Hantzis v. Commissioner, 638 Federal 2d 248 (1st Circuit 1981), reversing Tax Court Memo. 1979-299; Minick v. Commissioner, Tax Court Memo. 2010-12).
In Lyseng v. Commissioner, Tax Court Memo. 2011-226, the Tax Court held that where the taxpayer’s union had helped him find work in Minnesota, and it appeared reasonable that he would continue to use his union and his home address in Minnesota to obtain work in Minnesota, the taxpayer had adequate business justification for maintaining a home in Minnesota.
If a taxpayer does not have a regular place of business or a place where he regularly lives, then he is an itinerant worker – sometimes also referred to as a tax turtle – whose tax home follows him on the road. If a taxpayer is an itinerant, he or she does not have a home and thus, cannot take a deduction for the expenses of traveling away from home (Revenue Ruling 73-529; Kroll v. Commissioner, 49 Tax Court 577 (1968); Jacobs v. Commissioner, Tax Court Summary 2015-3; Krishnan v. Commissioner, Tax Court Summary 2019-14).
Revenue Ruling 73-529 provides a three factor test used in determining whether a taxpayer has a tax home: (1) the business connection to the locale of the claimed home; (2) the duplicative nature of the taxpayer’s living expenses while traveling and at the claimed home; and (3) personal attachments to the claimed home in determining whether taxpayer had a tax home.
In Jacobs v. Commissioner, Tax Court Summary 2015-3, a long haul truck driver taxpayer considered his tax home to be in Minnesota, where he stayed in the guest room of a longtime friend’s house when he wasn’t on the road. Jacobs claimed he contributed around $10,000 per year for living expenses at the Casper household, though he offered no evidence to substantiate his claim. The Tax Court relied on the three factor test put forth in Revenue Ruling 73-529 to conclude taxpayer was not able to substantiate his residency claim, finding he was an itinerant worker and that he was therefore ineligible to deduct his travel expenses. Married couples that both work and file a joint tax return may have separate tax homes (Allen v. Commissioner, Tax Court Memo. 2009-102; Chwalow v. Commissioner, 470 Federal 2d 475 (3d Circuit 1972)).
The tax home of a member of the U.S. Congress is considered to be the place within the state or congressional district where he has his family home. For tax years beginning before December 23, 2017, a member of Congress may not deduct more than $3,000 of travel expenses for each tax year (pre-TCJA Code Section 162(a)). For tax years beginning after December 22, 2017, amounts expended by a member of the U.S. Congress for living expenses are not deductible for income tax purposes (Code Section 162(a), flush language).
A state legislator who lives more than 50 miles from the state capitol can elect to treat his family home as his tax home and to be deemed away from home in the pursuit of a trade or business on any day the legislature is in session or he attends a committee meeting (Code Section 162(h)(1)(A)). By making the election, the legislator is deemed to have spent for living expenses an amount determined by multiplying the number of legislative days of the taxpayer during the tax year by the greater of:
(1) the amount generally allowable for those days to employees of the legislator’s state for per diem while away from home, to the extent the amount does not exceed 110 percent of the federal employee per diem; or
(2) the federal employee per diem during those days for the legislator’s state capital (Code Section 162(h)(1)).
A legislative day includes any day the legislature is in session. This includes any day when the members are expected to attend, regardless of whether the electing legislator actually does attend. A legislative day also includes any day the legislature is not in session but the physical presence of the electing legislator is formally recorded at a meeting of a committee of the legislature. The legislature is considered in session when it is not in session for a period of four days or less (Code Section 162(h)(2)). Living expenses include expenses for lodging, meals, laundry, and other incidental expenses but do not include expenses for travel fares, local transportation, or telephone calls (Regulation Section 1.162-24(d)(2)). No deduction is allowed for any expenses for which the legislator receives reimbursement. A legislator makes the election by attaching a statement to the legislator income tax return (or amended return) for the tax year for which the election is effective (Regulation Section 1.162-24(e)(2)).
A member of the military is not treated as traveling away from home while on a permanent duty assignment overseas because his permanent duty station is treated as his tax home (Commissioner v. Stidger, 386 U.S. 287 (1967)). Similarly, a naval officer assigned to permanent duty aboard a ship that has regular eating and living facilities is not treated as traveling away from home because the ship is treated as his tax home (Revenue Ruling 67-438).
A taxpayer’s commuting expenses for travel between his family home and his tax home are not deductible (Regulation Section 1.162-2(e)).
A travel agent could not deduct her travel expenses where she could not prove that the travel was ordinary and necessary to her travel services business and where she also brought along at least one family member on each trip (Peppers v. Commissioner, Tax Court Summary 2014-55).
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
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(Updated 03/15/2021 08:05)