A house is not necessarily a (tax) home.

To deduct temporary lodging and travel expenses, a taxpayer must show that they relate to travel away from his or her "tax home" (the geographical area of the taxpayer's principal place of business) and that the employment was completed within one year.

IRC section 162(a) provides that a taxpayer will not be considered temporarily away from home during any employment (or assignment) that exceeds one year. (For more, see "Defining the Temporary Workplace," JofA, May99, page 117.)

The IRS issued further guidance in revenue ruling 93-86, which said that assignments characterized at the outset as indefinite were not considered temporary regardless of the length of time required to complete them. As long as the one-year limit yeas not exceeded, the initial characterization of the length of the assignment determined whether or not the expenses were deductible.

In Thomas J. Mitchell and Janice M. Mitchell v. Commissioner (TC Memo 1999-283), a Los Angeles publisher retained a self-employed publishing consultant working out of his home. The publisher first engaged Mitchell in 1991 for an assignment expected to last four months. However, due to unexpected events at the publishing company (mostly personnel turnover), Mitchell's services were retained for a series of separate assignments, each lasting less than one year, until the assignments ended in 1996.

During 1994 and 1995, the years in question, Mitchell spent 155 days and 113 days, respectively, in California. He also rented an apartment near the publisher's office because it was cheaper than staying in a hotel.

The IRS disallowed the travel and lodging expense deductions Mitchell filed on his 1994 and 1995 returns, arguing that his tax home had moved to California.

The Tax Court sided with Mitchell. According to the court, Mitchell's tax home remained in Illinois because

* The taxpayer's consulting business and his personal residence were based in Illinois.

* Living in California was not his choice but was dictated by the exigencies of his work for the client.

* He spent more time in Illinois than California during each of the years in question.

* The taxpayer's connection to California was to provide services on an as-needed basis.

* He sought consulting work from other, unrelated clients from his Illinois office.

* His work in California was not indefinite, but temporary due to "unexpected happenings" at the client's office.

The court held that "merely because an independent contractor may return to the same general location in more than one year does not mean that the independent contractor is employed in that general location on an indefinite basis."

Observation: Where consecutive, separate and short-term (less than one year) assignments are a possibility, tax advisers should recommend to clients seeking to deduct temporary lodging and travel that they contract for and document each assignment separately.

--Vinay S. Navani, CPA, tax manager, Wilkin & Guttenplan, PC, East Brunswick, New Jersey.