Although employee business expenses generally were rendered nondeductible (at least temporarily) by the Tax Cuts and Jobs Act, a recent case on the concept of a “tax home” for an employee’s away from home expenses is still relevant to those who work with employee benefits.  In the case of Warque v. Commissioner,[1] an IRS agent unsuccessfully attempted to argue his tax home became Las Vegas when the agency agreed to place him on a list for potential hardship relocation to the Nevada City.

In 2009 Mr. Warque, who resided in Las Vegas, began working for the IRS as a revenue agent in Laguna Niguel, California.  In 2014 Mr. Warque used a “hardship transfer” process within the agency to attempt to have his assignment moved to Las Vegas.  The opinion describes the process and results as follows:

In 2014 Mr. Warque applied for a hardship transfer from the IRS examination office in Laguna Niguel to the IRS examination office in Las Vegas, Nevada. Although the request was approved on April 11, 2014, he was never transferred. The request approval did not guaranty a new job placement or transfer. The approval was for hardship eligibility. When approved, hardship eligibility puts the individual’s name on a list for consideration. Mr. Warque’s approval letter stated:

This is to inform you that your hardship application has been approved. Your name has been updated in the Special Programs database on 04/11/2014. This does not mean you have a job placement offer at this time. However, you will be considered for future vacancies in your desired post of duty with the status of a hardship eligible.

Essentially if a job vacancy became available in the IRS examination office in Las Vegas, the relevant IRS employment office would first check the Special Placement Programs Report for any matches. If Mr. Warque’s application was a match, the relevant employment office would request and receive his application. There was no guaranty that he would then receive the requested change to his post of duty location; further action was required.

Mr. Warque reapplied through the same process in 2015 and was again approved for hardship eligibility and placed on the list for consideration. Mr. Warque also applied in 2016, but that application was not approved. In 2017 he was temporarily authorized to change his post of duty to Las Vegas for a couple of months to care for his wife and newborn child. However, Mr. Warque never received a full-time hardship transfer to Las Vegas.[2]

Mr. Warque claimed employee business deductions on his tax returns for his travel expenses between Las Vegas and Laguna Niguel.  For the years in question he argued that, due to the hardship relocation process, his tax home should be treated as Las Vegas once he was approved to be placed on that list.

The opinion gives the following summary of the law as it regards expenses related to travel away from home:

Section 162(a)(2) expressly provides that expenses related to travel can be deducted if ordinary and necessary and incurred while the taxpayer is away from “home” in the pursuit of a trade or business. See Barone v. Commissioner, 85 T.C. 462, 465 (1985), aff’d without published opinion, 807 F.2d 177 (9th Cir. 1986). Traveling expenses, including amounts expended for meals and lodging and the use of “listed property” (as defined in section 280F(d)(4) and including passenger automobiles) may be deducted under section 162(a)(2) if they are: (1) ordinary and necessary; (2) incurred while away from home; and (3) incurred in pursuit of a trade or business. Commissioner v. Flowers, 326 U.S. 465, 470 (1946). The purpose of the “away from home” provision is to mitigate the burden of a taxpayer who, because of his or her trade or business, must maintain two places of abode and incur additional and duplicate living expenses. Kroll v. Commissioner, 49 T.C. 557, 562 (1968). For the purpose of section 162(a)(2), “home” is defined as the vicinity of a taxpayer’s principal place of employment rather than the location of the taxpayer’s personal residence (i.e., the “tax home” might be in different locale from the residence). Mitchell v. Commissioner, 74 T.C. 578, 581 (1980). However, where the employment is for a temporary rather than indefinite or permanent period, taxpayers may use their personal residence locale as their tax home. See Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958); Kroll v. Commissioner, 49 T.C. at 562-563. A business locale is considered temporary if the employment is such that “termination within a short period could be foreseen.” Albert v. Commissioner, 13 T.C. 129, 131 (1949). Even if it is known that the employment will terminate within a fixed time, it is not temporary if it is expected to last for a substantial or indefinite duration. See Wirt v. Commissioner, 55 T.C.M. (CCH) at 1371.[3]

The opinion notes that the Ninth Circuit Court of Appeals has established a test that applies in that Circuit (which includes Nevada and California):

The Court of Appeals for the Ninth Circuit established a test to determine whether a taxpayer’s employment is temporary or permanent in Harvey v. Commissioner, 283 F.2d 491, 495 (9th Cir. 1960), rev’g and remanding 32 T.C. 1368 (1959). The test looks at whether “there is a reasonable probability known to * * * [the taxpayer] that he may be employed for a long period of time at his new station.” Id. What constitutes a “long period of time” varies with the circumstances of each case. Id.[4]

The Court found that Mr. Warque’s tax home remained in Laguna Niguel through the period of employment.  First, when he accepted employment with the IRS he was aware the assignment to Laguna Niguel was permanent:

Mr. Warque traveled from his personal residence in Las Vegas to his place of employment in Laguna Niguel. Mr. Warque began working in Laguna Niguel in 2009 knowing that it was a full-time nontemporary position.[5]

The Court did not find that the application for a hardship relocation changed that situation:

This situation did not change when he applied for the hardship relocation. The hardship relocation approval letter clearly stated that there was no certainty that his duty station would be changed to Las Vegas. The approval was one of eligibility. The letter clearly stated that there was no guaranty he would be transferred. In fact he was not transferred. There could be no reasonable belief that the Laguna Niguel duty station changed to a temporary one in 2015 or earlier.[6]

The opinion concludes that these expenses related to Mr. Niguel’s personal preference to reside in Las Vegas rather than near his assigned work location:

Mr. Warque’s tax home for purposes of section 162(a)(2) was his Laguna Niguel place of employment. It was Mr. Warque’s personal preference to maintain a personal residence in Las Vegas. Consequently, the traveling expenses Mr. Warque incurred for mileage, rent, car repair and maintenance, car inspection, and meals were not covered by the exception in section 162(a)(2) and are not deductible. See Wirt v. Commissioner, 55 T.C.M. (CCH) at 1371-1372.[7]

As was noted at the beginning of this article, employee business expenses are now barred from being deducted by IRC §67(g) added by the Tax Cuts and Jobs Act.  But the issue still matters when looking at paying for employees’ travel away from home or claiming such a deduction for self-employed individuals.

[1] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021, https://www.taxnotes.com/research/federal/court-documents/court-opinions-and-orders/revenue-agent%e2%80%99s-unreimbursed-employee-expense-deductions-denied/76rs2 (retrieved July 8, 2021)

[2] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021

[3] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021

[4] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021

[5] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021

[6] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021

[7] Warque v. Commissioner, TC Summary Opinion 2021-18, July 8, 2021