The Eleventh Circuit found no errors in the Tax Court decision that a taxpayer's tax home was Pennsauken, N.J., rather than at his permanent residence in Atlanta during the years in question. Therefore, his travel expenses between Pennsauken and Atlanta were personal rather than related to his business and thus not deductible.
Facts: Michael E. Brown had been a CPA since 1989. Since at least 1998, he operated a self-described "concierge CFO business" providing finance-related services to clients. In 2012 and 2013 he resided in Atlanta and generated all of his business income between October 2012 and December 2013 from one client, American Furniture Rental (AFR), located in Pennsauken. During the first four months of 2012, he had another client, Park Mobile, located in Atlanta, that generated substantial income but few expenses. He claimed he had another client during 2012 and 2013; however, he reported no income or deductions from that client.
Brown's agreement with AFR required him to provide his services as an independent contractor and work a four-day workweek in Pennsauken and specifically excluded the reimbursement of any expenses of travel from Pennsauken to Atlanta. On his 2012 Form 1040, U.S. Individual Income Tax Return, Schedule C, Profit or Loss From Business, he reported a deduction of $10,065 for his weekly travel between Atlanta and Pennsauken and took a similar deduction of $52,617 on his 2013 tax return. The IRS disallowed the deductions for both years and assessed deficiencies totaling $21,574 plus accuracy-related penalties totaling $4,314. Brown petitioned the Tax Court for relief.
The Tax Court sustained the disallowance of Brown's deductions, finding that Pennsauken was his tax home at the time the travel expenses were incurred due to the following factors: His engagement with AFR was indefinite; he worked four days a week in Pennsauken; AFR was his only source of income during the time the travel expenses were incurred; and there was no evidence he had multiple clients at multiple locations. In addition, after the Tax Court concluded that his tax home was in Pennsauken, it found that the travel was primarily motivated by a desire to see his family, with no evidence that the travel had a business purpose.
The Tax Court also sustained the assessment of the accuracy-related penalties because, as a CPA, Brown should have known that his tax position on the travel expenses was dubious. The taxpayer appealed the disallowance of the travel deductions and the application of the accuracy-related penalties to the Eleventh Circuit.
Issues: Sec. 162(a)(2) allows a deduction for reasonable and necessary travel expenses if the expenses are incurred while away from home in the pursuit of a trade or business. For this purpose, a taxpayer's home is the vicinity of the taxpayer's principal place of employment, and a taxpayer is away from home when the taxpayer is required to travel away from that location on a temporary basis. If a taxpayer accepts permanent or indefinite employment at a location different from the taxpayer's residence, the taxpayer's tax home is now the new location, and the taxpayer is not considered "away from home." Brown argued that the Tax Court erred when it did not consider evidence that supported his position that Atlanta was his tax home. Alternatively, he argued that he did not have a regular or principal place of business, so that his place of abode (Atlanta) was his tax home.
Holding: The appellate court examined the Tax Court's factual findings for clear error and whether its legal conclusions were proper and held that the lower court properly disallowed the travel expenses and properly applied the accuracy-related penalty. Specifically, the court held that the Tax Court did not err when it concluded (1) Pennsauken was Brown's principal place of business from October 2012 through December 2013 because the AFR agreement was for three years with a possible extension, Brown worked four days a week in Pennsauken, and he spent more time working in Pennsauken than Atlanta or anywhere else; (2) that it should look only at Brown's activities for the years at issue, and not his activities in previous years, in determining whether he should be deemed to have no regular place of business, which could allow Atlanta to be considered his tax home; and (3) there was no business purpose to the travel because there was no evidence it benefited either AFR or his other business. Also, according to the court, the accuracy-related penalties should be upheld because the only argument against them Brown made on appeal was that he did not owe any deficiencies, and the Tax Court had found that he was liable for the assessed deficiencies.
- Brown, No. 19-12653 (11th Cir. 3/30/20), aff'g T.C. Memo. 2019-30
— By Charles J. Reichert, CPA.
