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Employers Need Clarity on Taxing Remote Work, CPA Group Says

· 5 minute read

· 5 minute read

Updated guidance on remote working arrangements is needed from IRS and Treasury officials, the leading body for U.S. accountants said in a letter addressing the deductibility of travel expenses by employees depending on whether they’re physically present in an employer-provided work space.

The American Institute for Certified Public Accountants in its August 25 letter called on the IRS and the Treasury Department to provide clarity on several matters. One was determining how an employee should be reimbursed for expenses incurred in traveling to an employer-provided work location when travel days are limited and the distance has increased—upending traditional notions of “commuting,” the AICPA stated.

The organization said its analysis of new scenarios involving various work arrangements—employer location-based, remote, and hybrid—had concluded that “current revenue rulings and interpretations of case law are outdated, do not reflect the current work environment, and are unclear in many instances.” It added, “The lack of updated guidance has left employers and employees in the untenable position of making decisions regarding employer workplace policies while the rules regarding amounts reported as payments, to or for the benefit of employees, remain uncertain.”

In many modern working arrangements, both the employer and the employee view the latter’s residence as the main site at which work is performed, the letter noted.

“In many instances, existing tax guidance does not apply to today’s work arrangements to determine when expenses are deductible travel expenses and when such amounts are non-deductible commuting expenses,” the letter read.

Specifically, the AICPA recommended that Treasury and the IRS revise Rev Rul 99-7 to eliminate its reference to the “exclusive use” requirement under Code Sec. 280A(c) and reflect modern work arrangements. In addition, the concept of “for the convenience of employer” should be updated, the accounting body recommended.

As an alternative, the AICPA recommended new guidance establishing a safe harbor to be used in determining a “principal place of business” with specific criteria that would no longer refer to the “exclusive use” requirement of Code Sec. 280A(c).

According to the letter, employers are reassessing their fringe benefit programs in response to employees’ questions about remote working arrangements. These include whether days spent in an employer-provided office are travel days on which remote workers could be reimbursed for their expenses.

The AICPA also recommended that Treasury and the IRS clarify the tax treatment of non-travel expenses incurred when employees are working remotely, refine the definition of “pursuit of a trade or business,” and offer guidance on how modern work location arrangements are delineated.

Because many employers have set policies and positions “based on reasonable interpretations of existing guidance,” new guidance should be issued that takes into account any transition relief employers would need to facilitate compliance, the AICPA told Treasury and the IRS.


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