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Administrative Tasks Don't Count Towards 39-Week Moving Expense Deduction Requirement

(Parker Tax Publishing April 2017)

The Tax Court held that a married couple was not entitled to deduct over $17,000 in moving expenses because the husband was not a full-time employee at his new place of employment for at least 39 weeks following the couple's move from Pennsylvania to California. The court rejected the couple's argument that routine preliminary administrative tasks performed by the husband before his official start date started the clock running on the 39-week requirement. Anderson v. Comm'r, T.C. Summary 2017-17.

Christopher and Sandra Anderson moved from Pennsylvania to California on March 7, 2012, incurring $17,415 in moving expenses. On June 7 of that year, Mr. Anderson signed an employment agreement with DLC, a consulting firm, stating that full-time employment would begin on July 16 and continue for one year. The contract contained a nonsolicitation clause prohibiting Anderson from performing services for DLC's clients other than through DLC during the term of the agreement and for one year after its termination, expiration, or cancellation. It also stated that it contained the entire agreement between the parties and that any modifications had to be set forth in a signed document.

Shortly after the June 7 signing of the agreement, Mr. Anderson assisted DLC in assembling marketing materials highlighting his background and experience. He also participated in employee training programs. The Andersons took a 10-day family vacation later that month. Mr. Anderson did not begin providing consulting services to DLC's clients until July 16, the contract start date. He received his first paycheck on July 27, compensating him for work performed during the two-week period ending July 22.

Code Sec. 217(a) permits a deduction for moving expenses paid or incurred during the tax year in connection with the commencement of work by a taxpayer as an employee at a new principal place of work. To qualify for the deduction, the taxpayer must, under Code Sec. 217(c), be employed full time in the general location of the new principal place of work for at least 39 weeks during the 12-month period immediately following the taxpayer's arrival in the new location. Given that Mr. Anderson arrived in California on March 7, he had to have worked as a full-time employee for at least 39 weeks over the 12-month period beginning on that date.

The Andersons argued that Mr. Anderson satisfied the 39-week requirement because he became a full-time employee when he signed the employment contract on June 7. They contended that as of June 7, Mr. Anderson could not seek alternative employment opportunities, and that DLC treated him as a full-time employee by asking for his assistance in preparing marketing materials and engaging in training activities. The IRS asserted that Mr. Anderson was not an employee of DLC, full-time or otherwise, until July 16 as provided in the employment agreement.

The Tax Court agreed with the IRS and found that, in light of the employment agreement and DLC's payroll records, Mr. Anderson first became a full-time employee on July 16. The employment contract stated that it began on that date and that it contained the entire agreement between the parties. Further, Mr. Anderson acknowledged that he first provided consulting services to DLC's clients, was first added to DLC's payroll, and first became eligible for employee benefits on July 16.

The court also found no support for the Andersons' contention that Mr. Anderson was barred from seeking other employment as of the June 7 contract signing date; the terms of the nonsolicitation agreement stated that it was not effective until July 16. The Andersons' contention that Mr. Anderson should be considered a full-time employee because DLC requested his assistance with marketing materials and his participation in training activities was unpersuasive. The court noted that employment generally begins when the employer is under an obligation to pay the employee, and there was no evidence to show that DLC was obliged, nor that Mr. Anderson expected, to be paid for these routine preliminary administrative tasks.

For a discussion of the requirements that must be met in order to deduct moving expenses, see Parker Tax ¶80,505.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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