IRS Revenue Ruling
1999-7

 Code Secs. 162, 262

<<FULL TEXT>>

26 CFR 1.162-2: Traveling expenses.
(Also sections 262; 1.262-1.)

Deductibility of daily transportation expenses. This ruling provides
the rules for determining whether daily transportation expenses incurred
by a taxpayer in going between the taxpayer's residence and a work
location are deductible business expenses under section 162(a) of the
Code.


REV. RUL. 99-7

ISSUE

Under what circumstances are daily transportation expenses incurred by
a taxpayer in going between the taxpayer's residence and a work location
deductible under section 162(a) of the Internal Revenue Code?


LAW AND ANALYSIS

Section 162(a) allows a deduction for all the ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any trade
or business. Section 262, however, provides that no deduction is allowed
for personal, living, or family expenses.

A taxpayer's costs of commuting between the taxpayer's residence and
the taxpayer's place of business or employment generally are nondeductible
personal expenses under sections 1.162-2(e) and 1.262-1(b)(5) of the
Income Tax Regulations. However, the costs of going between one business
location and another business location generally are deductible under
section 162(a). Rev. Rul. 55-109, 1955-1 C.B. 261.

Section 280A(c)(1)(A) (as amended by section 932 of the Taxpayer Relief
Act of 1997, Pub. L. No. 105-34, 111 Stat. 881, effective for taxable
years beginning after December 31, 1998) provides, in part, that a
taxpayer may deduct expenses for the business use of the portion of the
taxpayer's personal residence that is exclusively used on a regular basis
as the principal place of business for any trade or business of the
taxpayer. (In the case of an employee, however, such expenses are
deductible only if the exclusive and regular use of the portion of the
residence is for the convenience of the employer.) In Curphey v.
Commissioner, 73 T.C. 766 (1980), the Tax Court held that daily
transportation expenses incurred in going between an office in a
taxpayer's residence and other work locations were deductible where the
home office was the taxpayer's principal place of business within the
meaning of section 280A(c)(1)(A) for the trade or business conducted by
the taxpayer at those other work locations. The court stated that "[w]e
see no reason why the rule that local transportation expenses incurred in
travel between one business location and another are deductible should not
be equally applicable WHERE THE TAXPAYER'S PRINCIPAL PLACE OF BUSINESS
WITH RESPECT TO THE ACTIVITIES INVOLVED IS HIS RESIDENCE." 73 T.C. at
777-778 (emphasis in original). Implicit in the court's analysis in
Curphey is that the deductibility of daily transportation expenses is
determined on a business-by-business basis.

Rev. Rul. 190, 1953-2 C.B. 303, provides a limited exception to the
general rule that the expenses of going between a taxpayer's residence and
a work location are nondeductible commuting expenses. Rev. Rul. 190 deals
with a taxpayer who lives and ordinarily works in a particular
metropolitan area but who is not regularly employed at any specific work
location. In such a case, the general rule is that daily transportation
expenses are not deductible when paid or incurred by the taxpayer in going
between the taxpayer's residence and a temporary work site inside that
metropolitan area because that area is considered the taxpayer's regular
place of business. However, Rev. Rul. 190 holds that daily transportation
expenses are deductible business expenses when paid or incurred in going
between the taxpayer's residence and a temporary work site outside that
metropolitan area.

Rev. Rul. 90-23, 1990-1 C.B. 28, distinguishes Rev. Rul. 190 and holds,
in part, that, for a taxpayer who has one or more regular places of
business, daily transportation expenses paid or incurred in going between
the taxpayer's residence and temporary work locations are deductible
business expenses under section 162(a), regardless of the distance.

Rev. Rul. 94-47, 1994-2 C.B. 18, amplifies and clarifies Rev. Rul. 190
and Rev. Rul. 90-23, and provides several rules for determining whether
daily transportation expenses are deductible business expenses under
section 162(a). Under Rev. Rul. 94-47, a taxpayer generally may not deduct
daily transportation expenses incurred in going between the taxpayer's
residence and a work location. A taxpayer, however, 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. In addition, Rev. Rul. 94-47 clarifies
Rev. Rul. 90-23 to provide that a taxpayer must have at least one regular
place of business located "away from the taxpayer's residence" in order to
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. In this regard, Rev. Rul. 94-47 also
states that the Service will not follow the decision in Walker v.
Commissioner, 101 T.C. 537 (1993). Finally, Rev. Rul. 94-47 amplifies Rev.
Rul. 190 and Rev. Rul. 90-23 to provide that, if the taxpayer's residence
is the taxpayer's principal place of business within the meaning of
section 280A(c)(1)(A), the taxpayer may deduct daily transportation
expenses incurred in going between the taxpayer's 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.

For purposes of both Rev. Rul. 90-23 and Rev. Rul. 94-47, a temporary
work location is 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, for purposes of determining whether daily
transportation expense allowances and per diem travel allowances for meal
and lodging expenses are subject to income tax withholding under section
3402, Rev. Rul. 59-371, 1959-2 C.B. 236, provides a 1-year standard to
determine whether a work location is temporary. Similarly, for purposes of
determining the deductibility of travel away-from-home expenses under
section 162(a)(2), Rev. Rul. 93-86, 1993-2 C.B. 71, generally provides a
1-year standard to determine whether a work location will be treated as
temporary.

The Service has reconsidered the definition of a temporary work
location in Rev. Rul. 90-23 and Rev. Rul. 94-47, and will replace the
"irregular or short-term (i.e., generally a matter of days or weeks)
basis" standard in those rulings with a 1-year standard similar to the
rules set forth in Rev. Rul. 59-371 and Rev. Rul. 93-86.

If an office in the taxpayer's residence satisfies the principal place
of business requirements of section 280A(c)(1)(A), then the residence is
considered a business location for purposes of Rev. Rul. 90-23 or Rev.
Rul. 94-47. In these circumstances, the daily transportation expenses
incurred in going between the residence and other work locations in the
same trade or business are ordinary and necessary business expenses
(deductible under section 162(a)). See Curphey; see also Wisconsin
Psychiatric Services v. Commissioner, 76 T.C. 839 (1981). In contrast, if
an office in the taxpayer's residence does not satisfy the principal place
of business requirements of section 280A(c)(1)(A), then the business
activity there (if any) is not sufficient to overcome the inherently
personal nature of the residence and the daily transportation expenses
incurred in going between the residence and regular work locations. In
these circumstances, the residence is not considered a business location
for purposes of Rev. Rul. 90-23 or Rev. Rul. 94-47, and the daily
transportation expenses incurred in going between the residence and
regular work locations are personal expenses (nondeductible under sections
1.162-2(e) and 1.262-1(b)(5)). See Green v. Commissioner, 59 T.C. 456
(1972); Fryer v. Commissioner, T.C.M. 1974-77.

For purposes of determining the deductibility of travel-away-from-home
expenses under section 162(a)(2), Rev. Rul. 93-86 defines "home" as the
"taxpayer's regular or principal (if more than one regular) place of
business." See Daly v. Commissioner, 72 T.C. 190 (1979), aff'd, 662 F.2d
253 (4th Cir. 1981); Flowers v. Commissioner, 326 U.S. 465 (1946), 1946-1
C.B. 57.


HOLDING

In general, daily transportation expenses incurred in going between a
taxpayer's residence and a work location are nondeductible commuting
expenses. However, such expenses are deductible under the circumstances
described in paragraph (1), (2), or (3) below.

(1) 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.
However, unless paragraph (2) or (3) below applies, daily transportation
expenses incurred in going between the taxpayer's residence and a
temporary work location within that metropolitan area are nondeductible
commuting expenses.

(2) 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. (The Service will continue not to follow the Walker decision.)

(3) If a taxpayer's residence is the taxpayer's principal place of
business within the meaning of 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.

For purposes of paragraphs (1), (2), and (3), the following rules apply
in determining whether a work location is temporary. If employment at a
work location is realistically expected to last (and does in fact last)
for 1 year or less, the employment is temporary in the absence of facts
and circumstances indicating otherwise. If employment at a work location
is realistically expected to last for more than 1 year or there is no
realistic expectation that the employment will last for 1 year or less,
the employment is not temporary, regardless of whether it actually exceeds
1 year. If employment at a work location initially is realistically
expected to last for 1 year or less, but at some later date the employment
is realistically expected to exceed 1 year, that employment will be
treated as temporary (in the absence of facts and circumstances indicating
otherwise) until the date that the taxpayer's realistic expectation
changes, and will be treated as not temporary after that date.

The determination that a taxpayer's residence is the taxpayer's
principal place of business within the meaning of section 280A(c)(1)(A) is
not necessarily determinative of whether the residence is the taxpayer's
tax home for other purposes, including the travel-away-from-home deduction
under section 162(a)(2).


EFFECT ON OTHER DOCUMENTS

Rev. Rul. 190 and Rev. Rul. 59-371 are obsoleted. Rev. Rul. 90-23 and
Rev. Rul. 94-47 are modified (regarding the definition of temporary work
location) and superseded. With respect to issues (2) and (3) in Rev. Rul.
90-23 (regarding the gross income and employment tax treatment of
reimbursements for employee daily transportation expenses), see section
1.62-2 regarding reimbursements in general, and Rev. Proc. 97-58
(particularly sections 3, 9, and 10), 1997-2 C.B. 587 (or any successor),
regarding reimbursements using the optional business standard mileage
rate. Rev. Rul. 93-86 is distinguished.


DRAFTING INFORMATION

The principal author of this revenue ruling is Edwin B. Cleverdon of
the Office of Assistant Chief Counsel (Income Tax and Accounting). For
further information regarding this revenue ruling, contact Mr. Cleverdon
at (202) 622-4920 (not a toll-free call).

<<END RULING>>
 

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