20.10 Deducting Living Costs on Temporary Assignment
A business trip or job assignment away from home (20.6) at a single location may last a few days, weeks, or months. If your assignment is considered temporary, you may deduct travel costs (see below) while there because your tax home has not changed. An assignment is considered temporary by the IRS if you realistically expect it to last for one year or less and it actually does last no more than one year. If an assignment is realistically expected to last more than a year it is considered indefinite, and you cannot deduct your living costs at the area of the assignment because that location becomes your tax home. This is true even if the assignment actually lasts only a year or less. That is, you can be away for a year or less and still be barred from claiming a deduction if at the time you started the assignment you realistically expected it to last for more than a year. Likewise, employment that is initially temporary may become indefinite due to changed circumstances; see the Examples below.
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Planning Reminder
Federal Crime Investigations
Federal employees such as FBI agents and prosecutors who are certified by the Attorney General as traveling on behalf of the federal government in a temporary duty status to investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime are not subject to the one-year limitation on deductibility of expenses while away from home on temporary assignments.
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EXAMPLES
1. You are on a job assignment away from home in a single location that is expected to last (and it does in fact last) for one year or less. The IRS will treat the employment as temporary, unless facts and circumstances indicate otherwise. Expenses are deductible.
2. You are sent on a job assignment away from home at a single location. You expected that the job would last 18 months. However, due to financial difficulties you were transferred home after 11 months. Even though your assignment actually lasted for less than one year the IRS treats the employment as indefinite because you realistically expected it to last more than one year. Thus, your travel and living expenses while away from home are not deductible.
3. You are sent on a job assignment away from home at a single location. You expected that the job would last only nine months. However, due to changed circumstances occurring after eight months, you were asked to remain on the assignment for six more months. The IRS treats the assignment as temporary for eight months, and indefinite for the remaining time you are away from home. Thus, travel and living expenses you paid or incurred during the first eight months are deductible; expenses paid or incurred thereafter are not.
Deductible travel costs on temporary trip.
While on a temporary job assignment expected to last a year or less, you may deduct the cost of meals and lodging there, even for your days off. If you return home, say for weekends, your living expenses at home are not deductible. You may deduct travel expenses, meals, and lodging en route between your home and your job assignment provided they do not exceed your living expenses had you stayed at the temporary job location. If you keep a hotel room at the temporary location while you return home, you may deduct your round-trip expenses for the trip home only up to the amount you would have spent for meals had you stayed at the temporary workplace.
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Caution
Taking Your Family With You
If you take your family with you to a temporary job site, an IRS agent may argue that this is evidence that you considered the assignment to be indefinite. In the Michaels Example in this section, however, such a move was not considered detrimental to a deduction of living expenses at the job location.
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EXAMPLE
Michaels, a cost analyst for Boeing, lived in Seattle. He traveled for Boeing, but was generally not away from home for more than five weeks. Michaels agreed to go to Los Angeles for a year to service Boeing’s suppliers in that area. He rented his Seattle house and brought his family with him to Los Angeles. Ten months later, Boeing opened a permanent office in Los Angeles and asked Michaels to remain there permanently. Michaels argued that his expenses for food and lodging during the 10-month period were deductible as “away from home” expenses. The IRS contended that the Los Angeles assignment was for an indefinite period.
The Tax Court sided with Michaels. He was told that the stay was for a year only. He leased his Seattle house to a tenant for one year, planning to return to it. He regarded his work in Los Angeles as temporary until Boeing changed its plans. The one-year period justified his taking the family but did not alter the temporary nature of the assignment.
Separate assignments over a period over a year.
Where over a period of years you work on several separate assignments for one client, the IRS may attempt to treat the separate assignments as amounting to a permanent assignment and disallow living costs away from home, as in Mitchell’s situation, below.
No regular job where you live.
That you do not have regular employment where you live may prevent a deduction of living costs at a temporary job in another city. The IRS may disallow the deduction on the grounds that the expenses are not incurred while you are away from home; the temporary job site is the tax home.
EXAMPLE
Mitchell, a publishing consultant who lived and worked out of his home in Illinois, advised a publisher of a magazine with offices in California. Over a five-year period, from 1991 to 1995, he worked on short job assignments that averaged 130 days a year for the magazine. Some assignments arose because of unforeseen events, such as the abrupt firing of a novice editor, the hiring of a new editor, and the editor’s later absence because of cancer and her death. In 1994 and 1995, when working in California, he rented an apartment because it was cheaper than a hotel. He claimed lodging and meal expenses in California that the IRS disallowed on the grounds that his employment in California was not temporary; it lasted more than one year.
The Tax Court disagrees. Just because an independent contractor returns to the same general location in more than one year does not mean that he is employed there on an indefinite basis. Mitchell’s work followed an on again, off again pattern. Each job assignment that lasted less than a year ended with no expectation of future employment. Throughout the five-year period, his consultancy services were required by unexpected events.
