Brown v. Comm’r, T.C. Memo. 2019-30 (Apr. 8, 2019)
The IRS challenged travel expense deductions claimed by a self-employed business consultant who maintained a personal residence in Georgia and had worked as a concierge CFO for multiple clients. Prior to the tax years at issue, the consultant worked from various locations, including his residence. But when he entered into a three-year contract with a new client, he was required to work at the client’s New Jersey headquarters four days per week. The consultant asserted that—despite his contractual obligation—he had no regular or principal place of business, so Georgia was his tax home and his weekly expenses for travel to and from New Jersey were deductible business travel expenses. The IRS disagreed, arguing that when he entered into the multiyear consulting contract requiring him to work in New Jersey, New Jersey became his regular or principal place of business and his tax home. The consultant’s travel expenses to and from Georgia were thus personal in nature and not deductible. The taxpayer appealed.
In its opinion, the Tax Court noted that taxpayers may deduct traveling expenses while away from home in the pursuit of a trade or business. An employee’s “tax home” is generally where the employee works, not where the employee lives. Given the consultant’s three-year contract, the Tax Court dismissed the possibility that his engagement was temporary and should not change his tax home. The Tax Court also declined to examine the consultant’s entire work history to determine whether he had a regular or principal place of business; instead, it limited its consideration to the years at issue and concluded that during those years the consultant worked four days a week every week for one client, and did not work for multiple clients from multiple locations. While he may have worked at his Georgia residence, the court was unconvinced that business-related activities had to be performed there. Consequently, the New Jersey office was the consultant’s tax home, his weekly travel was not in the pursuit of a trade or business, and his travel expenses were not deductible.
EBIA Comment: This opinion highlights a frequent source of confusion for employers and employees. Work assignments of indefinite duration can change an employee’s tax home, and temporary assignments change an employee’s tax home if they are realistically expected to last longer than one year (see our Checkpoint article). From a longer-term perspective, it is easy to see how a series of assignments, each lasting only a few years, might suggest that an individual has no regular or principal place of business. But as this case demonstrates, neither the IRS nor the Tax Court is willing to take such a long view. For more information, see EBIA’s Fringe Benefits manual at Sections XXI.B (“Deductible Business Travel Expenses”), XXI.C (“Tax Home”), and XXI.D (“Temporary Assignments”).
Contributing Editors: EBIA Staff.