Quick... where's your home?

Seem like a silly question? When dealing with tax issues and travel expenses, it's not silly at all. It's very possible that your "tax" home could be completely different from your regular home. How is that possible? Let's take a look at an example.

Debbie works in downtown Los Angeles, but she lives on the beach in San Diego... approximately 120 miles away. Each Monday, Debbie grabs a commuter plane and jets into L.A. She keeps a small apartment in the city. On Friday afternoon, after her workweek is done, she hops another commuter and returns to San Diego, where she spends her weekends enjoying the weather, the beach, her family, and friends.

If you ask Debbie where her home is, she'd quickly reply, "San Diego," and she'd be right. So, you might think that all of her travel expenses to and from L.A., including her food and lodging, would be deductible, since she is out of town on business. But, that's not likely the case.

If you asked the IRS where Debbie lives for tax purposes, they would immediately reply, "Los Angeles." The IRS would claim that L.A. is Debbie's "tax home." To deduct any business travel expenses, you must be away from your "tax home," not necessarily the place you call home.

In the case above, the IRS would rule that Debbie's travel costs are nothing more than non-deductible commuting... and her apartment and meal expenses would simply be non-deductible personal living expenses.

The Rules?

As we discussed above, identifying your "tax home" is critical to a travel expense deduction because the tax code permits a deduction for traveling expenses only while you're "away from home." I'd love to point directly to a code section, or regulation, or court case that would easily give you a "bright line" definition of your "tax home," but it's a bit difficult. Why? Because the definition remains in some dispute.

The IRS and the Tax Court maintain that your tax home is where you work. Two Circuit Courts agree with this interpretation, but two other Circuit Courts define a taxpayer's home as his residence. To make matters even worse, four other Circuit Courts take a middle position, ruling that a person's tax home is determined from all the applicable facts and circumstances. The Supreme Court has had several opportunities to resolve this conflict, but has failed to do so.

So... are Debbie's travel expenses deductible? I think not. If Debbie decided to deduct them, she'd have a pretty big fight on her hands, and would likely end up in court to resolve her dispute. So, unless you want to do a bunch of tax research, you might simply treat your tax home as the place where you work.

Temporary Assignment

What about a temporary assignment? Would that be any different? Funny you should ask. Let's take a look at Debbie again, but let's change some of the facts: Assume that Debbie both lives and works in San Diego. Her employer decides to give her a 6-month job assignment at the branch office in Los Angeles. Additionally, her employer doesn't reimburse her for any travel, lodging, or meal expenses (the rat). Does Debbie now have deductible travel expenses? Yup... she sure does.

If you are temporarily employed at a distant site, you can deduct the cost of travel, meals, and lodging while at the temporary job site because you are "away from home." But, understand that the term "temporary" is defined as an assignment that lasts for less than one year (except for federal employees involved in criminal investigations). So, be mindful of this definition if your employer sends you to a remote location for an indefinite period of time. If your assignment is indefinite (i.e., expected to last for more than one year), you could lose the right to claim any travel, meal, and/or lodging expenses.

As you can see, tax home and travel issues can get complicated quickly. So, before you leap, take a look at IRS Publication 463, which deals with travel, entertainment, gift, and auto expenses. You'll want to make sure that you have all of your facts straight before you plan on deducting what might otherwise be non-deductible expenses.

Related Links:
IRS Publication 463
IRS Publication 529
Limits on Itemized Deductions
Deductions — An Overview

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December 29, 2000

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