Defining the Temporary Workplace

For most taxpayers getting to and from work—no matter how arduous, frustrating or costly their daily commute—is a nondeductible personal expense.

Taxpayers whose residences are their principal places of business, however, may deduct daily transportation expenses between a home office and other temporary or regular work locations related to their trade or business. A home office qualifies as a principal place of business even if it is used only for administrative or managerial activities.

In the past, the IRS defined a "temporary" location as any location at which the taxpayer performed services on an irregular or short-term (days or weeks) basis.

In Walker v. Commissioner (101 TC 537, 1993), the Tax Court held a lumberjack could deduct daily transportation expenses even though his only regular place of work was his home and the home did not qualify as his principal place of business.

Taxpayers following Walker could thus deduct the costs of commuting to temporary work sites even if they didn't have a home office.

In revenue ruling 99-7 (1999-5 IRB), however, the IRS has redefined the meaning of "temporary employment" illustrated in Walker.

According to the new ruling, employment is temporary only if

  • It is realistically expected to last (and does, in fact, last) for one year or less.
  • It is initially expected to last for one year or less, but at some later date it becomes apparent the work will exceed one year (the work is temporary only until the date of the changed expectation).

If employment at a certain location is realistically expected to last for more than one year and is completed in less than a year, the employment is not considered temporary under the new ruling.

The following is an example of how the new definition might be applied. A foreman is asked to oversee a new production process at another plant for a temporary period. She normally commutes to work by bus, but the new plant is 40 miles away. She drives to and from the distant site for nearly four months until the project is completed.

Prior to the issuance of revenue ruling 99-7, this probably would not have been considered a qualified trip. Under this ruling, however, it qualifies as a deductible transportation expense.

What would happen if the foreman's work at the temporary site had lasted 13 months?

According to the new regulation, the foreman would not be able to deduct her travel expenses after she realized her assignment would last more than one year. Her expenses would not be deductible from the fifth month or the tenth month, or whenever she knew her work would exceed the year. Her expenses prior to the change in her expectation would remain deductible.

Observation. Taxpayers who work out of their homes, but whose homes, like Walker's, do not qualify as principal places of business, may not be able to deduct transportation expenses under revenue ruling 99-7. In order for a home office to qualify, the taxpayer must conduct substantial administrative or management activities at the location.

Consequently, CPAs should advise their clients to perform administrative tasks in their home offices or to open another regular place of business (shop) outside of their homes. Doing so will enable these taxpayers to deduct the expenses of commuting to work locations.

—Michael Lynch, CPA, Esq., associate professor of tax accounting at Bryant College, Springfield, Rhode Island.


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