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Taxpayer's Job Was Temporary and His Tax Home Was Missouri, Not Florida.
(Parker Tax Publishing February 2014)

The fact that a Florida taxpayer's apartment lease in Missouri was scheduled to expire in less than a year, along with the fact that he negotiated an addendum for possibly terminating the lease earlier, indicated to the court that the taxpayer's job in Missouri was temporary and not indefinite; thus, Missouri was not his tax home, and his unreimbursed business expenses were deductible. Snellman v. Comm'r, T.C. Summary 2014-10 (2/3/14).

Roj Snellman was unemployed during the first several months of 2009. In May, he began work as a project manager for U.S. Fidelis, Inc. in Wentzville, Missouri. Fidelis hired Roj to manage the development of an automated interactive system to track its customers' credit card payments. Fidelis informed Roj that he would be paid an annual salary of $90,000, but expected the credit card project to be completed no later than December 31, 2009, and Roj's employment would end at that time. A Fidelis representative told Roj that he would not be reimbursed for expenses related to his employment.

On May 24, 2009, Roj drove from his home in Florida to Missouri. He stayed in a hotel in Missouri from May 25 to June 10, 2009. On June 11, 2009, Roj signed a lease agreement to rent an apartment in St. Charles, Missouri, for $525 per month through December 31, 2009. The apartment was approximately 18 miles from Fidelis' offices. Roj negotiated an addendum to the lease agreement that stated that if he lost his job with Fidelis and provided the landlord with 30 days' written notice, he would be able to terminate the lease without having to pay a "lease break fee." Fidelis began to experience financial difficulties, and Roj's job ended abruptly on November 2, 2009. After collecting his final paycheck, Roj drove back to Florida on November 18.

For 2009, Roj filed a joint tax return with his wife, Patricia. They attached Schedule A and Form 2106-EZ, Unreimbursed Employee Business Expenses, to the return. Roj reported that he drove his vehicle 7,381 miles in connection with his Fidelis job and, applying the standard mileage rate of 55 cents per mile, he reported total vehicle expenses of $4,060. He also reported expenses for travel while away from home of $27,200. He derived this amount by multiplying 160 days (the total number of days he spent in Missouri) by a per diem rate of $170 for meals, incidental expenses, and lodging. The IRS disallowed the deductions for lack of substantiation and on the ground the expenses were not ordinary and necessary business expenses. According to the IRS, Wentzville, Missouri, was Roj's tax home, and thus he could not deduct expenses relating to his job in Wentzille. The IRS also said that the Snellmans failed to properly compute the deduction for meal expenses in accordance with Code Sec. 274(n), and that they were not entitled to compute the amount of any lodging deduction on a per diem basis.

Code Sec. 162(a)(2) allows a taxpayer to deduct travel expenses, including expenditures for meals and lodging, if the expenses are reasonable and necessary, incurred while away from home, and made in pursuit of a trade or business. Although the term "home" (or "tax home") in Code Sec. 162(a)(2) normally means a taxpayer's principal place of employment (and not the taxpayer's personal residence), there is an exception to this rule when a taxpayer accepts a job away from his or her personal residence and the job is temporary rather than indefinite. A job is considered temporary if it is expected to last for only a short period. Cod Sec. 162(a) provides that a taxpayer will not be considered as temporarily away from home during any period of employment if such period exceeds one year.

OBSERVATION: The purpose underlying this exception is to relieve the taxpayer of the burden of duplicate living expenses while at a temporary employment location, since it would be unreasonable to expect him to move his residence under such circumstances.

At trial, Roj presented a mileage log that he admitted assembling after receiving the IRS notice of deficiency.

The Tax Court held that Florida was Roj's tax home, not Missouri. According to the court, this determination was supported by the fact that Roj's apartment lease was scheduled to expire on December 31 and that he negotiated an addendum for terminating the lease on short notice. Because the mileage log failed to meet the strict substantiation requirements of Code Sec. 274(d), the court found it of little value. However, the court noted, there was no doubt that Roj drove from Florida and back in May and November of 2009 and it thus allowed a deduction for vehicle expenses of $1,215 (before the 2 percent floor) to account for the travel cost of transportation to and from Missouri.

With respect to the per diem expenses, the court concluded that Roj spent 137 days in Missouri for business purposes and was entitled to deduct $59 per day for meal and entertainment expenses. The court then applied the 50 percent reduction provided for in Code Sec. 274(n). With respect to Roj's lodging expenses, the court noted that lodging expenses paid or incurred by an employee while away from home are not eligible to be computed on the basis of a per diem allowance. Because Roj could not substantiate the amount spent on the hotel he stayed in before he obtained the leased apartment, no deduction was allowed for the hotel. However, even though Roj did not have canceled checks or receipts showing that he actually paid the $525 monthly rent for the full term of the lease, the court said his testimony regarding his living arrangements was forthright and credible. Consequently, the court concluded that the Snellmans could deduct lodging expenses of $2,975, comprising a pro rata share of the monthly rental charge for June and full monthly charges for July through November.

For a discussion of the requirements for deducting expenses for travel away from home, see Parker Tax, ΒΆ91,105. (Staff Contributor Parker Tax Publishing)

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