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The travel expense deduction; one for the road.


One For The Road

IRC Section 162 provides for a deduction for traveling expenses to the extent reasonable in amount incurred while away from home in the pursuit of a trade or business.(1) The allowance of a deduction for traveling expenses is not something new to the tax law. Initially encompassed within the 1918 tax law's deduction for ordinary and necessary expenses incurred in a trade or business, and permitted by regulations issued by the Service in 1920, explicit recognition of the travel expense deduction was codified in 1921. Despite its longevity, the deduction has given rise to considerable litigation.

As our society becomes increasingly mobile and the security of employment more and more uncertain, it is likely that the seeking of travel expense deductions will gain greater prominence. In this article an examination of the tax law pertaining to the travel expense deduction is provided with particular emphasis placed upon the relevance of determining if a job related move is temporary or not in determining if costs related to it constitute deductible travel expenses.

Deductible Costs

Significant deductions can be obtained by qualifying for the travel expense deduction. Expenses potentially includable in this category are the costs of:

1. Air, train and bus fare. 2. Operating and maintaining a

car. 3. Taxi fare and other costs of

transportation between a hotel

and place of business or

between places of business. 4. Transportation from one's

place of eating or sleeping to

a temporary work assignment. 5. Baggage charges and

transportation costs for sample and

display materials. 6. Meals and lodging while away

from home on business. 7. Cleaning and laundry

expenses. 8. Telephone and telegraph

expenses. 9. Fees. 10. The cost of a stenographer. 11. Other similar qualifying


Criteria for Deductibility

In its landmark decision in the case of Flowers(3), the Supreme Court held that to qualify for deduction, travel expenses must meet the following criteria:

1. The expense must be a

reasonable and necessary

traveling expense as that expense is

reasonably understood. 2. The expense must be incurred

in the pursuit of business.

According to the court in

Flowers, to be incurred in the pursuit

of business there must be a

direct connection between the

expense and the conduct of

the trade or business or

employment of the taxpayer. 3. The expense must be incurred

while away from home.

In addition to meeting these criteria to be deductible, the expense must also be substantiated in accordance with Section 274. Pursuant to Section 274, a travel expense will not be deductible unless substantiated by adequate records concerning:

1. The amount of the expense or

other item. 2. The time and place of the

travel, entertainment,

amusement, recreation or other use

of the facility or property. 3. The business purpose of the

expense or other item. 4. The destination or locality of


Adequate substantiation for this purpose requires corroboration of the taxpayer's statement as to the expense. Receipts, bills, canceled checks and affidavits of others are illustrative of types of acceptable corroboration.


The issue which has generated the greatest controversy in determining qualified expense deductions is that of "away from home." In resolving this it is necessary to ascertain what the taxpayer's home is and whether the taxpayer was in fact away from home.

The Service has long contended that home for this purpose generally means the taxpayer's principal place of business or employment.(5) Should the taxpayer have more than one place of business or employment the legislative history of Section 162 indicates that the principal place of business or employment will be determined by an examination of objective factors. These factors include:

1. The total time ordinarily spent

by the taxpayer at each

business location. 2. The degree of business

activity conducted by the taxpayer

at each location. 3. The amount of income

generated from each location.(6)

If the taxpayer lacks an identifiable principal place of business or employment, the taxpayer's home will be considered the taxpayer's "regular place of abode in a real or substantial sense." Such abode will be determined by an examination of the relevant facts and circumstances. As stated in Rev. Rul. 73-529 of particular importance in determining a taxpayer's regular place of abode are:

1. Whether the taxpayer

performs a portion of his

business in the vicinity of his

claimed abode and uses such

abode for lodging while

performing business there. 2. Whether living expenses are

duplicated because business

reasons require the worker to

be away from home. 3. Whether the taxpayer:

a) has continued to use the

home frequently for lodging.

b) has members of the

family currently residing there.

c) has abandoned the place

where his historical place of

lodging was located.

Itinerant workers lacking either a principal place of business or employment or a regular place of abode are not eligible for travel expense deductions due to being unable to establish a home to be away from.

Away From - To be considered away from home for travel deduction purposes a "sleep or rest rule" also referred to as an "overnight" rule must be satisfied.(7) According to the rule, the taxpayer must be away from his principal place of business or employment substantially longer than an ordinary work day, and the taxpayer cannot reasonably be expected to complete the trip without relief from duty for a sufficient time to obtain sufficient rest or sleep, and such is tacitly or expressly approved by the employer.(8)

Thus, a person who must go outside the vicinity in which his principal place of business or employment is located for some 16 hours on business and is given some six hours within which to eat and rest will be considered away from home. Whereas in contrast, a truck driver who drives all day but is only allowed one hour during the day to rest will not be considered away from home.

Temporary or Indefinite

Someone who works at a location different than his principal place of business or, if lacking a principal place of business, his place of regular abode, may be considered in travel status during the entire period he is away from his tax home. To be so considered the taxpayer must not be found to have permanently or indefinitely moved to the new location.(9) The issue of whether a taxpayer has temporarily moved has commonly arisen with regard to welders, construction workers, electrical workers, railroad crew members and teachers. Among the costs deductible if one is found to have temporary work other than where his or her tax home is located are the costs of transportation, meals and lodging when going to and from one's place of work to one's tax home. If moving one's family to be near the temporary work area, costs related to the other members of the family are not deductible as travel expenses.

Numerous factors are looked at to determine whether work is temporary, indefinite or permanent. Among the factors considered relevant to this inquiry are:

1. The nature of the job; 2. The reasons for the worker

living away from his/her

family; 3. The reasonable expectation as

to length of stay; 4. The financial and familial

bonds of the worker with the

original location.(10)

Revenue rulings and case law indicate that the reasonable expectation and actual duration of the work and retention of ties with one's differently situated tax home are critical. In determining the length of work it should be noted that annually recurring work in the location, or the worker having numerous assignments at the alleged temporary work site or area resulting in staying in the area for a substantial period, e.g., greater than one year, will generally cause the work to be considered indefinite or permanent. For example, recurring seasonal work will typically not be considered temporary, nor will several assignments at the area which last several years. A less commonly arising issue that practitioners should also be cognizant of is the possibility that work may be considered temporary for a period of time and then be found to have been converted to indefinite or permanent status. Where such conversion is deemed to exist travel expenses related to the period the work is recognized as temporary will qualify for deduction.

The recent case of Yeates(11) illustrates the significance of a careful examination of the surrounding facts and circumstances in classifying a work assignment as temporary or not.

Yeates concerned an electrical worker who lived in Arkansas. Unable to find work in Arkansas, the taxpayer went to Chicago, where he had previously worked, in search of employment. Through the Local 134 International Brotherhood of Electrical Workers, the taxpayer was able to find work in Chicago. The taxpayer claimed deductions for travel costs while in Chicago. The deductions were challenged by the Service eventuating in the case being heard by the Tax Court. The Court denied the deductions. According to the Court, due to the taxpayer's seniority in the local, he had a high probability of gaining work in the future. Even though the taxpayer preferred to return to Arkansas, due to the likely availability of work to him in chicago, his period of stay was found indefinite rather than permanent.

In general, if the actual and expected duration of a taxpayer's job is less than one year, the Service has permitted temporary work status to be recognized. According to Rev. Rul. 83-82, however, a rebuttable presumption exists as to the indefiniteness of a job if it lasts more than one year and not more than two years. This presumption can be rebutted by:

1. Clearly demonstrating that the

realistically expected duration

of the work was less than two

years; 2. Returning to the alleged tax

home after the work

assignment is completed; 3. Showing that the alleged home

is the taxpayer's place of

regular abode.

To show that the alleged home is the taxpayer's regular place of abode for this purpose, the factors stated in Rev. Rul. 73-529 should be followed. Unfortunately, work will be considered indefinite if lasting more than two years.

Rev. Rul. 83-82 provides insight into the analysis implemented in determining if the travel expense deduction is qualified by examining several different hypothetical situations.

One scenario involves a taxpayer who goes to work on a project until completion in a city other than that in which he and his family live. The taxpayer's family remained in the regular established place of abode, and the taxpayer returned on most weekends. The job lasted for some 16 months, upon the conclusion of which the taxpayer returned home. The job qualified as temporary, and the taxpayer is entitled to travel expense deductions. Although the work lasted more than 12 months, the taxpayer was able to rebut the presumption of indefiniteness due to meeting the factors expressed in Rev. Rul. 83-82.

In another situation involving a job lasting 16 months, the taxpayer failed to qualify for the travel expense deduction. This situation concerned a taxpayer who had sold his home and moved his family to the city where the work assignment was located and substantially cut ties with the former residence. These actions prevented him from showing that he had maintained the alleged home as his regular place of abode, and thus made him unable to rebut the presumption of Rev. Rul. 83-82.

The recent case of Johnson(12) illustrates how going to a new area for more than one year and not more than two years is evaluated. Johnson concerned a taxpayer who was a tenured assistant professor of nursing at the University of Texas. The taxpayer had taught at the University of Texas for some 19 years before taking a leave of absence without pay to pursue a doctoral degree at the University of Hawaii. To help her finance her studies, the taxpayer obtained a guaranteed student loan.

The taxpayer stayed in Hawaii from May 1981, through September 1983. During that time, she filed a non-resident income tax return with the state of Hawaii and taught at a community college for four months. In addition, during this period, she had property, an account with a credit union, books in storage and a post office box located in Texas as well as a valid library card for a Texas library. The taxpayer did not incur duplicate living expenses, because she had sold her home in Texas prior to going to Hawaii. After reviewing these facts, the Tax Court permitted the taxpayer to deduct travel expenses. In the Court's eyes, the fact that the taxpayer had taught for four months and did not incur duplicate living expenses were not determinative. Greater importance was placed on the taxpayer having job security at the University of Texas, retention of ties with Texas, apparent intent to return to Texas and actual return to Texas. These facts led the Court to conclude that the taxpayer's place of regular abode remained in Texas.

In contrast to Johnson, in the case of Duke v. Commissioner(13), travel expense deductions were denied to a taxpayer who had taught at Tennessee Tech before going to graduate school at the University of Georgia on a leave of absence. The Court reached this decision because unlike the taxpayer in Johnson, the taxpayer in Duke did not retain substantial ties with the area from which he moved, had only taught there for a few years and did not return to the school upon completion of his studies. Based on these facts, the Court concluded that the taxpayer did not retain the area for which he moved as his tax home.


Substantial tax savings can be obtained by qualifying for travel expense deductions. While normally thought of in terms of an overnight trip to meet a client, going out of town or to a convention, taxpayers can obtain even greater deductions if considered to be in travel status while at a temporary job location. The critical issue in determining if such period qualifies as travel for tax purposes concerns whether such work assignment is:

1. Temporary or not;

2. Away from the taxpayer's tax home.

Revenue rulings and case law are particularly significant in determining if going to a location or a work assignment qualifies as travel for Section 162 deduction purposes. By being aware of the relevant tax law in taking a return position or helping plan a taxpayer's conduct and connection to a tax home prior, during and after going to another location for work, practitioners can enhance clients' ability to save tax dollars by successfully claiming travel expense deductions.


(1)IRC Section 162(a)(2). See also Reg. 1.162-2. (2)IRS Publication 463. Note deductible meals and entertainment expenses are subject to an 80% ceiling and that both unreimbursed and non-accountable plan employee travel expenses are includable in the tier two group of itemized deductions as well. (3)C.I.R. v. Flowers, 326 U.S. 250 (1946). Note Flowers concerned a taxpayer who resided in one city and had his principal place of business in another. The Court was spared having to determine the taxpayer's tax home because the expenses involved were found insufficiently related to the taxpayer's trade or business to be deductible. (4)IRC Section 274(d) and Regs. 1.274-5 and 1.274-5T. See IRC Section 274(c) and Reg. 1.274-4 for special rules concerning foreign travel. (5)Rev. Rul. 54-147, 1954-1 C.B. 251, Rev. Rul 60-189, 1960-1 C.B. 60, and Rev. Rul. 75-432, 1975-2 C.B. 60. (6)Legislative history P.L. 97-34 (1976). Rev. Ruls. 73-529 and 75-432 provide insight into the determination of a tax home if there is no principal place of business. (7)United States v. Correll, 389 U.S. 299 (1976) and Rev. Rul 75-170, 1975-19 I.R.B. 14. (8)Rev. Rul. 75-168, 1975-1 C.B. 58, Rev. Rul 75-170, 1975-1 C.B. 60 and Rev. Rul. 83082, 1983-1 C.B. 45. (9)Rev. Rul. 60-189, 1960-1 C.B. 60, and Rev. Rul. 83-82, 1983-1 C.B. 45. (10)Rev. Rul. 60-189, 1960-1 C.B. 60. (11)Yeates, 55 TCM 1075. (12)Johnson, TCM 1988-177. (13)Duke, TCM 1976-38.

Mark A. Segal is assistant professor of accounting at the University of South Alabama. He earned JD and MBA degrees from Tulane University; LLM in taxation from Emory University. He is a member of the Florida, Louisiana and Washington, D.C. Bar associations.
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Author:Segal, Mark A.
Publication:The National Public Accountant
Date:Feb 1, 1991
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