Help! If I take a Permanent Job, How Will This Affect My Tax Home?

globe covid mask

Life has changed dramatically with COVID, especially life as a traveler, healthcare or otherwise! We’ve had several calls recently from travelers asking: “Due to COVID, travel contracts are scarce, and I’ve been offered a permanent job.  If I take a permanent job outside of my tax home, how will this affect my tax home?”

Taking a permanent job shifts the tax home to that new location unless you have more income from another location. The reality is that you have got to work, and travel contracts are scarce or being canceled, so what do you do? You can take the permanent job for however long you need to; however, your tax home will shift.

If you are planning to go back to traveling after all this blows over, and want to use your previous tax home, then you will mostly likely need to reestablish it.  How do you reestablish that tax home? By earning significant income in the area that is fully taxed. You might ask, what is “significant income”? Well, considering that the traveling life is divided into 3-month intervals and one could work 4 assignments a year. A starting point is 2-3 months of income in that new location.

Local Assignments and Tax-Free Lodging during COVID

lodging

During the COVID crisis, several healthcare providers are taking local assignments to help with the surge of affected patients. They have valid concerns about exposing their family or those they share a home with to the virus.

Can they receive tax free housing even though they are working locally?

The answer is yes.  Tucked away in the Regulations (Section 1.162-32(a)) is a little-known provision for local lodging primary designed to accommodate local business meetings, conferences, training and other related activity. In addition to these situations, it also allows the lodging to be provided when the facts and circumstances of a situation require local lodging. The current COVID pandemic is such an event that would fit those limitations.

There are a few items to note.

  • The lodging should be a dwelling that the employer/agency/hospital provides in kind. In other words, they pay for the lodging directly. That can be a hotel, house or apartment.
  • The lodging must be a necessity rather than a personal preference
  • The lodging cannot be lavish or extravagant
  • There cannot be a greater social or personal benefit beyond the provision of a place to stay to fulfill one’s duties at the care facility.
  • These limitations do not allow giving a per diem in place of directly paying the lodging provider or paying by receipt. Agencies are required to track their non-taxable lodging and meal reimbursements

Reference: https://www.law.cornell.edu/cfr/text/26/1.162-32

Article in WSJ: https://www.wsj.com/articles/after-fighting-coronavirus-new-yorks-health-care-workers-sleep-away-from-home-11586895678?shareToken=st121eaf18385849a282c7e5712da35085

It took 8 years, but the IRS finally updated the Per Diem Rules!

photo of person holding pen

Photo by Acharaporn Kamornboonyarush on Pexels.com

 

Wondering when the Per Diem Revenue Procedure was ever going to be updated? Well the IRS just updated it! Click the following link to go to new IRS Revenue Procedure 2019-48 which addresses per diems.  This replaces IRS Revenue Procedure 2011-47.

Click to access rp-19-48.pdf

When it Comes to Duplicated Expenses, its All About the Home / Dwelling

A lot of Travelers mistakenly think that paying rent is a magic carpet ride to a tax home. This is not the case. You must be maintaining a dwelling that you use for your own lodging. Paying rent and maintaining a home you pay rent for are different things. That means the following types of arrangements that some speak of do not rise to the level of a “maintaining a dwelling”:

  1. I give Mom some money
  2. I help out with expenses
  3. I pay a utility bill
  4. I help out when at home
  5. I help my aunt out by sending her money
  6. I pay for a storage unit
  7. A combination of the above

When its an arrangement with a related party, the entire package needs to look, smell and taste like a real rental OR an equitable sharing of expenses.

The court case linked below distinguishes #5 above from a real rental or maintenance of a home. As the discussion states, “[t]he reason for allowing deductions for expenses while away from home {and / or allow tax free reimbursements (per diems) is to mitigate the burden placed on taxpayers who, for business reasons, must maintain two places of abode

In the case the taxpayer tried to use her benevolance payments to an aunt as proof of duplicated expenses.

Valdez v Commissioner

Trips Home During Assignments or Between Extensions

We are often asked about whether trips home are deductible during assignments or between extensions.

A trip home during an assignment is considered a personal expense by the IRS unless there is a business purpose for the journey. If one is returning home for work then most all of the trip is deductible, but if the return home is for personal reasons, then the deductions are limited to what would be deducted if the traveler stayed at the assignment area. For example, if one has an apartment at the assignment area, the lodging costs do not change however, the employee cannot deduct meal allowances when at home. The meal allowances are the only part that could have been deductible had the traveler stayed. If the meal allowance was $50/day and the employee when home for 4 days then $200 of transportation expenses for the journey home would be allowed

For reference, read the next to last paragraph of this ruling

Revenue Ruling 54-497 on Trips Home

I Do Not Want a Reimbursement!! Ill Deduct It On My Return Instead!!

Refusing Money

 

Want to decline tax free reimbursements for travel expenses and deduct them on your return instead? You cannot claim the deduction if you were offered or had access to an employer reimbursement..

Linked below is an old court case that is still cited in current cases involving an executive that refused to submit his expense reports to his company for reimbursement and then claimed the expenses on his return. The court denied his deduction because “he {was} attempting to convert the employer’s right to a deduction into a right of his own.”

60-1 USTC 9135 Marvin A Heidt and Beatrice Heidt Petitioners-Appellants v Commissioner of Internal Revenue

What is a Tax Home? Are you a Tax Turtle?

I have spent the last 20 years explaining the concept of a tax home to clients and those that claim to know more than the IRS. This is a very instructive and candid Tax Court case that uses more common vocabulary so non-attorney readers can understand. A good description of a tax home.

The case also focuses on a common practice among mobile professionals of using a friends or relatives home as a tax residence and what should be expected.

Also, the case introduces another term to the tax home vocabulary: it defines an itinerant – someone who does not have a fixed tax home – as a “Tax Turtle” 🙂

Enjoy

Shalom Jacobs v Commissioner

Tax Turtle