The Cost of Commuting to Work

Has the IRS established a link between the home-office and transportation expense deduction that goes beyond its authority? Most taxpayers cannot deduct the cost of commuting to and from work. But for those who can, the standards developed for deducting transportation expenses between a taxpayer's residence and work locations have reached a new level of confusion. Varying treatments of these expenses in the Internal Revenue Code, in two Internal Revenue Service revenue rulings and in a Tax Court holding put the IRS in an unfavorable position. The IRS disallowed a deduction for transportation expenses, claiming a taxpayer's residence did not qualify as his "principal place of business." The Tax Court, however, found the taxpayer in compliance with the "regular place of business" requirement and allowed the deduction. To try to correct the problem, the IRS issued revenue ruling 94-47, which established a permanent link between the home-office requirements of IRC section 280A and the deductibility of transportation expenses under IRC section 162(a). That link, however, may be beyond the IRS's interpretive authority. EARLY DEVELOPMENTS In 1953, the IRS issued revenue ruling 53-190 (1953-2 CB 303), which allowed a deduction for daily transportation expenses between a taxpayer's residence and a temporary work location outside the taxpayer's metropolitan area if the taxpayer has no specific regular place of business or employment. In 1980, in Curphey v. Commissioner, 73 TC 766, the Tax Court held that daily transportation expenses resulting from a taxpayer's travel between an office in his or her residence and other work locations were deductible if the home office qualified as the taxpayer's "principal place of business" under section 280A(c)(1)(A). The IRS issued revenue ruling 90-23 (1990-1 CB 28) in 1990. It provided that a taxpayer with one or more regular places of business could, under section 162(a), deduct daily transportation expenses paid or incurred going between the taxpayer's residence and temporary work locations. THE WALKER CASE In C. W. Walker v. Commissioner, 101 TC 537 (1993), a logger drove daily from his residence to several job sites. Walker worked approximately six to seven hours per day cutting trees and approximately seven hours per week at his residence on tool repairs and maintenance. He also stored his equipment and supplies and took calls for logging jobs from his residence. The IRS disallowed Walker's transportation expenses between job sites and his residence, reasoning that these expenses were nondeductible commuting expenses because Walker's residence was not established as his principal place of business according to the standards in section 280A. While Walker's residence was not established as his principal place of business under the home-office deduction standards, it was established as his regular place of business under the language of revenue ruling 90-23. The Tax Court found the standards used in establishing a residence as a regular place of business were not the same as those for determining a principal place of business. Therefore, since Walker's residence was a regular place of business and his job sites were temporary work locations, the transportation expenses were deductible under revenue ruling 90-23. The IRS issued revenue ruling 94-47 (1994-2 CB 18) on July 18, 1994, in an attempt to clarify under what circumstances daily transportation expenses between a taxpayer's residence and a work location were deductible under section 162(a). The ruling said the IRS would not follow the Tax Court position in Walker and provided three situations when transportation expenses between a residence and work locations were deductible: 1. Daily transportation expenses paid or incurred between the taxpayer's residence and a temporary, work location outside the metropolitan area where the taxpayer lives and normally works. …