Tax Court Decision Holds Potential Impact for Travel Deductions

• Learn about the Tax Court case setting new standards for travel deductions.
• Find out why the location of your working time matters.
• What questions does this raise for your travel deductions?

There are many professions that require taxpayers to travel extensively and spend significant amounts of time in paid lodging. Traditionally, taxpayers claim these as travel deductions. However, a case recently heard by the Tax Court – Soboyede, TC Summary Opinion 2021-3, 1/26/21– has apparently established a new standard for what the IRS is to consider your tax home. And, it’s not necessarily the same place that you think of as your primary residence. Read on for Fiducial’s latest news on this topic.

Tax Court vs Travel Deductions

The case centered on an attorney with his own law offices in both Minnesota and Washington, D.C. In the tax year in question, 2015, he spent 54 days in Nigeria. The rest of his time he spent working in one or the other of his offices. Multiple companies paid him $46,130 for document review work that year, with $38,548 attributed to work performed in Washington, D.C. When there, he either stayed in a hotel or an apartment for at least 161 days. He incurred a total of $8,400 in travel expenses and deducted these expenses. He also earned $7,582 for document review done in Minnesota, where he spent at least 115 days.

Where your spend your time counts

In reviewing his travel deductions, the Tax Court determined that even if the attorney spent the other 35 days of the year in Minnesota, he spent over half of his total working days in Washington, D.C.. This made that city his tax home even if his primary residence was elsewhere. Since the tax law disallows deductions for personal lodging expenses or commuting, the decision effectively eliminated the attorney’s ability to deduct the expenses he incurred to stay at the hotel or apartment and will have the same impact on individuals who work at multiple locations without a specific place of business. The calculation that will count the most will not be based on where you pay rent or a mortgage, but instead how much time you spend in each location and how much income you generate while you’re there.

Because the attorney’s tax home for 2015 was considered to be the hotel and apartment in Maryland based on his income, the court did not allow him to deduct the $8,400 in lodging expenses. The court viewed those costs as personal. Why? Because they did not consider him to be away from home or traveling for business.

How does this apply to you?

Taxpayers who travel need to view this ruling as a cautionary tale, not only in the decisions that they make regarding travel deductions and expenses but also in making sure that they keep accurate records of expenses wherever they are working. What may seem like a business expense may not be. Likewise what may seem like a commuting cost may end up being viewed as a business expense.

Do you have any questions about your tax home? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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