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Commuting Expenses

Expenses incurred in the use of an automobile in travel between a taxpayer's home and his principal place of business are considered to be personal expenses and, therefore, are not deductible (except to the extent that they are itemized deductions such as interest or taxes). However, in certain circumstances, a taxpayer may deduct the cost of commuting from his principal residence to a temporary job site. First, a
taxpayer may deduct daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works. Rev. Rul. 99-7, 1999-1 C.B. 361. In addition, if a taxpayer has one or more regular work locations away from the taxpayer's residence, the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer's residence and a temporary work location in the same trade or business, regardless of the distance. Rev. Rul. 99-7, 1999-1 C.B. 361. And finally, if the taxpayer's residence is the taxpayer's principal place of business within the meaning of Code Section 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance. These rules are discussed in detail below.

OBSERVATION: Reimbursements provided to employees who incur commuting expenses in going between their residences and business locations other than their designated offices can be excluded from income if the expenses would otherwise be deductible, but must be included in income if they would not.

The metropolitan area issue comes into play only if the taxpayer works at a series of temporary jobs and has no regular work location. (A taxpayer who has at least one regular work location away from the taxpayer's residence may deduct transportation expenses incurred in going between the residence and a temporary work location regardless of distance, and a taxpayer whose residence is the taxpayer's principal place of business may deduct transportation expenses incurred in going between the
residence and another work location regardless of distance. Rev. Rul. 99-7, 1999-1 C.B. 361.) For such a taxpayer, only the transportation expenses incurred in going to temporary work locations outside of the metropolitan area are considered deductible business expenses. CCA 200025052.

A taxpayer who has one or more regular places of business away from the taxpayer's residence may deduct as an ordinary and necessary business expense daily transportation expenses incurred in going between the taxpayer's residence and temporary work locations regardless of the distance. Rev. Rul. 99-7, 1999-1 C.B. 361; Rev. Rul. 90-23, 1990-1 C.B. 28. In Rev. Rul. 90-23, a temporary work location was defined as any location at which the taxpayer performs services on an irregular or short-term (i.e., generally a matter of days or weeks) basis. However, in Rev. Rul. 99-7, the IRS ruled that the same one-year standard used for determining the deductibility of expenses for travel away from home to a temporary work site is used to determine the deductibility of commuting expenses to a temporary work site. If the employment is realistically expected to last a year or less and in fact does last for one year or less, it is temporary. If it is realistically expected to last for more than one year, it is not temporary, regardless of whether it in fact
lasts for more than one year.

The Tax Court applied Rev. Rul. 90-23, 1990-1 C.B. 28, to permit a taxpayer to deduct daily transportation expenses incurred in going between the taxpayer's residence and numerous temporary work sites. Walker v. Commissioner, 101 T.C. 537 (1993). The court allowed a deduction for these expenses based on its interpretation of Rev. Rul.
90-23, notwithstanding that the taxpayer's recurring work at the residence, while sufficient in the court's view to make that location a regular place of business, was not sufficient to qualify the residence as a principal place of business within the meaning of Code Section 280A(c)(1)(A) (relating to the home office deduction). However, the IRS has stated that it will not follow this decision, because a deduction for daily transportation expenses incurred in going between a taxpayer's residence and a temporary place of business is only allowed where the taxpayer also has a regular place of business that is not located at the taxpayer's residence.

If a taxpayer's residence is the taxpayer's principal place of business within the meaning of Code Section 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

In determining whether daily transportation expenses incurred in going to and from a place of business located at the taxpayer's residence are deductible, the IRS stated that great weight must be given to the inherently personal character of a taxpayer's residence and trips to and from that residence. According to the IRS, if an office in the taxpayer's residence satisfies the principal place of business requirements of Code
Section 280A(c)(1)(A), then the business activity there is so central to the taxpayer's business as to overcome the inherently personal nature of the residence and the residence is considered a business location for purposes of Rev. Rul. 90-23. Conversely, the residence is not considered a business location for such purpose if the office in the taxpayer's residence does not satisfy the principal place of business requirements of Code Section 280A(c)(1)(A) since the business activity there is not sufficient to overcome the inherently personal nature of the residence. Rev. Rul. 94-47, 1994-2 C.B. 18, amplifying and clarifying Rev. Rul. 190, 1953-2 C.B. 303 and Rev. Rul. 90-23, 1990-1 C.B. 28.

CAUTION: Rev. Rul. 90-23 also warns: "If it is determined upon examination that there is a clear pattern of abuse by the taxpayer in claiming a business expense deduction for daily transportation expenses paid or incurred in going between the taxpayer's residence and asserted temporary work locations without proof of a valid business purpose, the Service will disallow any deduction for such expenses and impose appropriate penalties."

An employee who works at two places of business in one day may deduct the expense of commuting from one place to another. Local transportation expenses incurred in travel between one business location and another are deductible even when the taxpayer's principal place of business is her
residence.

PRACTICE TIP: If a self-employed professional makes a stop at a client's office on her way in to work, the transportation expenses for the part of the trip from the client's office to her office become deductible.

If an employee is permitted to work from home, but is required to report to a main office for meetings and other purposes (i.e., a "flexiplace" arrangement), she can deduct commuting expenses incurred in going between
the home and the main office only if her work location/residence qualifies as her principal place of business under the home office rules. If the employee's flexiplace work location is not her residence, the flexiplace work location is a regular place of business. Thus, the expenses of going between her residence and her flexiplace work location, or between her residence and the main office, are non-deductible.

If an employee maintains a home office that does not meet the
requirements of Code Section 280A(c)(1)(A) for deductibility of expenses (principal place of business, regular and exclusive business use, and convenience of the employer), trips between the residence and other work locations are nondeductible commuting expenses unless the trips qualify
as trips to temporary work locations.

The distance a person must travel to work generally has no bearing on the deductibility of commuting expenses. For example, the cost of traveling to and from regular places of employment in remote areas has been held to be a nondeductible commuting expense, even though neither public
transportation nor housing near the job site is available.

Automobile expenses incurred in a car pool are not deductible expenses. Payments received from passengers are not includible in income because these amounts are considered to be reimbursements for the driver's expenses. However, drivers of car pools operated for profit must include payments received from the riders in their gross income and deduct expenses as in any other business. Rev. Rul. 55-555, 1955-2 C.B. 20.

Commuting expenses may be partially deductible if a commuter has to transport heavy or bulky tools, materials, or equipment to and from work. However, only the additional expenses (such as the cost of renting a trailer that is towed by the taxpayer's car or truck) are deductible under this rule. The deduction is available only for that portion of the cost of transporting the work implements that is accurately determinable to be in excess of the cost of commuting by that same mode of transportation without the work implements. It is immaterial that an employee would have used a less expensive mode of transportation were it not for the necessity of carrying the tools. In addition, although an employer requires the taxpayer to bring tools to work, no deduction is
allowed if the additional transportation costs are attributable to the taxpayer's choice of residence. McCabe v. Commissioner, 688 F.2d 102 (2d Cir.), cert. denied, 459 U.S. 906 (1982).

The IRS does not ordinarily issue rulings or determination letters on whether expenses are nondeductible commuting expenses, except for situations governed by Rev. Rul. 99-7, 1999-1 C.B. 361. Rev. Proc. 2002-3, 2002-1 I.R.B. 117, Section 4.01(12).