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By Jason Watson, CPA
Posted Saturday, November 4, 2023
We often get the question What is my tax home? It is a tricky question… and it is one that a lot of taxpayers are very interested in since your tax home is where you will generally pay taxes and commuting to your tax home is not deductible.
One of the best ways to illustrate the issue is a quick review of a recent Tax Court case, Barrett v. Commissioner, Tax Court Memo 2017-195. Barret was a video producer in Las Vegas, Nevada (this is getting good already). His employer constructed offices in Washington, D.C., which required Barrett to travel to and from several times a year. His average stay in Washington was about two weeks.
Barrett claimed about $55,000 in travel expenses and the IRS challenged arguing that his tax home was in Washington and not Las Vegas. However, the Tax Court disagreed with the IRS because Barrett proved that he did substantial work for his employer in Las Vegas in addition to the work in Washington. As such, his tax home was considered Las Vegas and not Washington.
This allowed him to deduct his travel expenses including lodging and meals since he was not commuting to his tax home. A win for Barrett. But… he eventually lost since he could not substantiate his expenses. So while he was allowed to deduct associated expenses, his recordkeeping was shoddy. Shocking.
Another variant of the tax home issue for business income is the deduction of business expenses. We have yet another Tax Court case that is eerily similar to the Barrett case above. In Bigdeli v. Commissioner, Tax Court Memo 2013-148, the taxpayer was an oral surgeon living in Pennsylvania who traveled 130 miles to New York where he worked at a dentist office.
His personal home was Pennsylvania and his tax home was New York. His $55,950 in travel expenses for the two years in question were disallowed because a) they were personal non-deductible commuting expenses and b) his work location and subsequent tax home did not meet the temporary work location rules.
What if Bigdeli had a home office where he performed administrative functions in addition to his primary work functions outside the home? No dice.
There is a derived (some would say contrived) 50 mile radius rule. It is derived from IRC Section 162(h) which defines the local area for state legislators as 50 miles. The federal government defines metropolitan area for IRS employees as 50 miles from an IRS office as detailed in the Internal Revenue Manual 6.518.104.22.168 (revised December 2009). There are other references to 50 miles, so it is a good rule of thumb to use.
How does the 50-mile rule factor into your home office world? To eliminate commuting using an administrative home office argument, your home office must be within 50 miles of your tax home. This is per Revenue Rulings 99-7 and 93-86, including Chief Counsel Advice 200027047 (CCA’s are the IRS’s own attorneys’ recommendation and interpretations).
Some caution here! This is an administrative home office argument… where you primarily do your work outside the home, and regularly and exclusively use a space in your home for administrative duties such as accounting, speaking to your attorney, invoicing, reviewing contracts, etc.
If you perform your primary work functions in both your home office and a work location outside the home, then your tax home will be the location where you spend the most time, perform the most critical functions and earn the most revenue. This is referenced in Chief Counsel Advice 200020055 which refers to Revenue Ruling 93-86 and 75-432, plus Markey v. Commissioner, 490 F.2d 1249 (6th Circuit 1974). Yeah, some old references but current tax law.
So, if you want to deduct travel, lodging and meals expenses associated with multiple work locations, either a) have your home office be within 50 miles of your tax home, b) do the most work in your home office with the outside-the-home work being secondary or c) have the assignment be temporary (under one year in duration).
How about having a W-2 job in Worcester, MA and running a business in New York City? In Sherman v. Commissioner from 1951, the Tax Court ruled that Worcester was Sherman’s tax home and the expenses of travel, lodging and meals associated with his secondary business in New York City were deductible. Win for the taxpayer! A massive one.
Keep in mind the IRS definition of itinerant-
If you do not have a regular or a main place of business or post of duty and there is no place where you regularly live, you are considered an itinerant (a transient) and your tax home is wherever you work. As an itinerant, you cannot claim a travel expense deduction because you are never considered to be traveling away from home.
As mentioned previously, WCG CPAs & Advisors has a lot of Certified Registered Nurse Anesthetists (CRNA) who travel all over the country putting people to sleep on short-term contracts, or stints if you are Formula 1 fan. Unless you return periodically to a place where you regularly live, you will not have a tax home. Without a tax home a lot of travel, lodging and meals deductions go away.
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