20.12 Business-Vacation Trips Outside the United States

On a business trip abroad, you may deduct your travel expenses (the 50% limit applies for meals), even though you take time out to vacation, provided you can prove: (1) the primary purpose of the trip was business and (2) you did not have control over the assignment of the trip.

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Vacation Areas
If the IRS determines that you were primarily on vacation, it will disallow all travel costs except for costs directly related to your business in the area such as registration fees at a foreign business convention (20.15).
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Fixing the date of the trip does not mean that you had control over the assignment. IRS regulations assume that when you travel for your company under a reimbursement or allowance arrangement, you do not control the trip arrangements, provided also that you are not: (1) a managing executive of the company; (2) related to your employer (20.4); or (3) have more than a 10% stock interest in the company. You are considered a managing executive if you are authorized without effective veto procedures to decide on the necessity of the trip. You are related to your employer if the employer is your spouse, parent, child, brother, sister, grandparent, or grandchild.

Rule for managing executives and self-employed persons.

If you are a managing executive, self-employed, related to your employer, or have a more-than-10% stock interest, your deduction for transportation costs to and from your business destination may be limited. However, a full deduction for transportation costs is allowed if:

1. The trip outside the United States took a week or less, not counting the day you left the U.S. but counting the day you returned,
2. If the trip abroad lasted more than a week, you spent less than 25% of your time, counting the days your trip began and ended, on vacation or other personal activities, or
3. In planning the trip you did not place a major emphasis on taking a vacation.

If the vacationing and other personal activities took up 25% or more of your time on a trip lasting more than one week, and you cannot prove that the vacation was a minor consideration in planning the trip, you must allocate travel expenses between the time spent on business and that spent on personal affairs. The part allocated to business is deductible; the balance is not. To allocate, count the number of days spent on the trip outside the United States, including the day you leave the U.S. and the day you return. Then divide this total into the number of days on which you had business activities; include days of travel to and from a business destination.

If you vacation at, near, or beyond the city in which you do business, the expense subject to allocation is the cost of travel from the place of departure to the business destination and back. For example, you travel from New York to London on business and then vacation in Paris before returning to New York. The expense subject to allocation is the cost of traveling from New York to London and back; see Example 2 below. However, if from London you vacationed in Dublin before returning to New York, you would allocate the round-trip fare between New York and Dublin and also deduct the difference between that round-trip fare and the fare between New York and London; see Example 3 below.

EXAMPLES
1. You fly from New York to Paris to attend a business meeting for one day. You spend the next two days sightseeing and then fly back to New York. The entire trip, including two days for travel en route, took five days. The plane fare is deductible. The trip did not exceed one week.
2. You fly from Chicago to New York, where you spend six days on business. You then fly to London, where you conduct business for two days. You then fly to Paris for a five-day vacation after which you fly back to Chicago. You would not have made the trip except for the business that you had to transact in London. The nine days of travel outside the United States away from home, including two days for travel en route, exceeded a week, and the five days devoted to vacationing were not less than 25% of the total travel time outside the U.S. The two days spent traveling between Chicago and New York, and the six days spent in New York, are not counted in determining whether the travel outside the United States exceeded a week and whether the time devoted to personal activities was less than 25%.
Assume you are unable to prove either that you did not have substantial control over the arrangements of the trip or that an opportunity for taking a personal vacation was not a major consideration in your decision to take the trip. Thus, 5/9 (five nonbusiness days out of nine days outside the U.S.) of the plane fare from New York to London and from London to New York is not deductible. You may deduct 4/9 of the New-York-to-London round-trip fare, plus lodging, 50% of meals, and other allowable travel costs while in London. No deduction is allowed for any part of the costs of the trip from London to Paris.
3. Same facts as in Example 2, except that the vacation is in Dublin, which is closer to the U.S. than London. The allocation is based on the round-trip fare between New York and Dublin. Thus, 4/9 of the New York to Dublin fare is deductible and 5/9 is not deductible. Further, the IRS allows a deduction for the excess of the New-York-to-London fare over the New-York-to-Dublin fare.

Weekends, holidays, and business standby days.

If you have business meetings scheduled before and after a weekend or holiday, the days in between the meetings are treated as days spent on business for purposes of the 25% business test discussed above. This is true although you spend the days for sightseeing or other personal travel. A similar rule applies if you have business meetings on Friday and the next scheduled meeting is the following Tuesday; Saturday through Monday are treated as business days. If your trip is extended over a weekend to take advantage of reduced airfares, the additional expense of meals, lodging, and other incidental expenses is deductible (20.10).

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Weekend Expenses
If your business trip is extended over a weekend to take advantage of reduced airfares, the additional cost of meals, lodging, and other incidental expenses is deductible.
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