8739 / When is a taxpayer considered to be “away from home” for purposes of deducting business travel expenses? What if the taxpayer is away for an extended period of time for business reasons?

As discussed in Q 8738, the IRS requires that a taxpayer be away from the company’s principal place of business, rather than a residence, in order to deduct business travel expenses that would otherwise be personal in nature (such as food and lodging). The IRS has ruled that a taxpayer’s tax “home”—meaning principal place of business—is not limited to a specific building or worksite, but instead encompasses the entire city or general area in which the business is located.¹

In cases where a taxpayer is required to take extended business trips, determining the location of a taxpayer’s primary place of business becomes difficult, though for most taxpayers, the determination is simple because many taxpayers maintain a residence in the general vicinity of their primary place of business. For taxpayers who are required to travel often for business, such extended business travel raises the question as to where that taxpayer’s tax “home” is located.

Generally, in order for the taxpayer to deduct business-related travel expenses, the travel must be temporary in nature (“temporary” for these purposes has been statutorily interpreted to mean an employment period not exceeding one year²).

In other words, if a taxpayer is assigned to a new work location for an indefinite period of time, the taxpayer’s principal place of business—and tax “home” for travel expense deduction purposes—is transferred to that new location.³

Often, the analysis of whether a taxpayer who travels for business has acquired a second “tax home” turns upon whether or not it would be reasonable to expect that taxpayer to relocate. For example, the Second Circuit has held that the real issue in a case where the taxpayer resided in Colorado, but had committed to a two year position in New York, was whether or not a reasonable person in her position would have relocated her residence to New York.⁴

Congress has clarified the issue so that Section 162 now specifically provides that a taxpayer will not be temporarily “away from home” for any period of employment that exceeds one year for tax years beginning after 1992.⁵ If the taxpayer can show that the business travel was realistically expected to last for one year or less, and that travel in fact does last for one year or less, the travel will be considered temporary. On the other hand, if the travel is realistically expected to last for more than one year, or there is no realistic expectation that the travel will last for less than one year, the travel will be considered indefinite regardless of whether it actually lasts for more than one year.6 A very narrow exception to this rule exists for federal employees who are travelling in connection with the investigation or prosecution of a federal crime.⁷

This statutory rule applies for taxpayers travelling for business reasons to a single location for more than one year. The distinction between indefinite and temporary business travel remains important in situations where the taxpayer’s business travel may include multiple travel locations over a period that exceeds one year.

In Wilson v. Commissioner, for example, the taxpayer, who was from Idaho, was assigned by his employer to a series of temporary construction jobs in various locations in California over a period of time that exceeded one year. He claimed that, because each of these jobs was temporary, his principal place of business was in Idaho so that he should have been entitled to deduct his travel expenses while working in California. The Tax Court disagreed, finding that, while construction jobs are temporary by nature, all of the facts and circumstances had to be examined to determine whether the business travel was in fact indefinite. In this case, the overarching employment relationship was important and demonstrated an indefinite relationship so that the taxpayer could not reasonably argue that his travel could be segmented into individual construction jobs.⁸