Paul L. Caron

Monday, July 29, 2019

Lesson From The Tax Court: How A New Work Location Becomes A Tax Home

The Bureau of Labor Statistics says here that almost half of U.S. families headed by a married couple were two-earner households in 2018.  Having a two-earner household has many advantages over a one-earner household, the most obvious one being more income.  Today’s lesson, however, is a cautionary one.  Two rules about tax homes may lessen the take-home earnings of the second income: the rule about married couples and the rule about temporary employment.

In Hector Baca and Magdalena Baca v. Commissioner, T.C. Memo. 2019-78 (June 26) (Judge Holmes), the couple lived in El Paso where both had worked.  In 2011 Mr. Baca got a new job in Midland, a city some 300 miles away.  But it was an on-call job, where any one job call could be his last.  At issue for tax years 2012 and 2013 was whether he could deduct his travel costs between El Paso and Midland.  Judge Holmes said no.  The fact that Ms. Baca's job remained in El Paso did not affect the location of Mr. Baca's tax home.  Married taxpayers can have two tax homes and Mr. Baca's was Midland.  Thus Mr. Baca's costs of Midland travel and lodging could not be deducted from the money he made there.  That reduced the advantage of this married couple's second income.  Details below the fold.


The term “tax home” is a term of art.  Basically, it is where a taxpayer lives in order to work.  Only when a taxpayer must travel away from their tax home because of business will those expenses be deductible under §162. Otherwise, the expenses are personal, disallowed by §262.  After all, everyone has to live somewhere and the choice of where to live is personal.  Thus, the cost of getting to your job (commuting) is also personal.  Our personal choice of where to live does not allow us a deduction in the cost of going to work, even if we do not believe we had a realistic choice to live closer to work than two hours away, a situation faced by many folks in large metro areas.  Rev. Rul. 99-7 is really helpful in explaining how the IRS will distinguish deductible travel away-from-home costs from non-deductible commuting costs. 

Sometimes a taxpayer who has established a tax home in one location gets a long-distance job.  If the job is just temporary, the travel expenses are deductible.  The Tax Court has explained that “the purpose for allowing deductions for travel to and from a temporary business location is to assist a taxpayer who must temporarily be away from his residence for an employment-based need, when it would be unreasonable to expect him to move indefinitely.”  Hirsch v. Commissioner, T.C. Sum. Op. 2016-37. 

The trick is to draw the line between “temporary” and “indefinite.”  Temporary work generates the deduction.  But work that is expected to continue for an indefinite period of time does not fall within this temporary employment rule. See Walker v. Commissioner, 101 T.C. 537, 549-550 (1993).

Rev. Rul. 99-7 gives a pretty bright-line distinction: a one year rule.  Here it is the basic rule:  

“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.”   

The concept of tax home applies to each individual taxpayer.  That means married couples might have two tax homes.  The classic case is Coerver v. Commissioner, 36 T.C. 252 (1961).  There Mrs. Coerver was employed in Manhattan starting in 1943.  She lived there.  In 1955 she married Mr. Coerver, who was employed by DuPont and lived in Wilmington.  She moved to Wilmington but continued to keep an apartment in Manhattan spending about 150 nights there each year.  She deducted the cost of the apartment and the cost of travel to and from Manhattan as travel “away from home.”  

The Coevers argued that since they filed a joint return there was only one “taxable unit” and, accordingly, only one tax home.  The Tax Court said that the proper way to analyze the matter was to look at each taxpayer’s tax home because:

“each spouse must first be entitled to a particular deduction before it can be aggregated. The concept of a "taxable unit" under the joint return provision, section 6013, merely means that while there are two taxpayers on a joint return, there is only one taxable income. It does not create a new tax personality which would be entitled, in its own right, to deductions not otherwise available to the individual spouses under the pertinent sections of the statute.” 

The Court then decided that “quite obviously [Ms. Coerver’s] expenditures for rent and other living expenses in New York were not incurred away from home within the meaning of section 162(a), but were nondeductible personal or living expenses.”  Concluded the Court: "The job, not the taxpayer's pattern of living, must require the traveling expenses."


Mr. and Ms. Baca lived in El Paso during the tax years at issue, 2012 and 2013.  Ms. Baca worked for a bank in El Paso.  Mr. Baca was employed by a company called Advanced Stimulation Technologies (AST) as an on-call commercial driver to move and operate fracking equipment in the oil fields around the Midland and Odessa area in Texas, some 300 miles from El Paso.  He had started that gig in 2011 and it lasted until 2014.  Before 2011 Mr. Baca had a variety of start-ups in El Paso, some of which lasted into the tax years at issue, but produced very little income.

Although an employee of AST, Mr. Baca would work only when AST called him and only where they sent him.  There was never any guarantee that he would get a call.  Each call might be his last.  As it turns out, however, AST called him with such regularity during the years at issue that he earned at least $99,000 in 2012 and $74,000 in 2013 from AST.  I say “at least” because the opinion is unclear on what his W-2’s reported or what he reported as income from AST. 

In addition to his work for AST, Mr. Baca started an oilfield services business in Midland during 2012, even buying a special truck---called a belly dump---to move material cleared from oil-drilling sites.  He created a partnership to run the business.

On his 2012 and 2013 returns Mr. Baca deducted travel-away-from home expenses on both Schedule A (as unreimbursed employee expenses) and Schedule C (presumably in association with his belly-dump business, although the opinion is not clear).  He usually drove back and forth between El Paso and his work sites in the Midland area oil-fields.  Sometimes he stayed overnight, sleeping in his truck at a truck stop or in a rented mobile home on a job site.   

Lesson 1:  The Difference Between “Temporary” and “Uncertain”

The IRS disallowed almost all the deductions, but also found some deductions that the Baca’s had failed to claim and allowed those.  Good to know that can happen!  The Baca’s petitioned the Tax Court to review both the travel-away-from home deductions and a bunch of other deductions that are not relevant to this lesson.  Judge Holmes noted that, taken together, this was “an unusually messy substantiation case.” 

This lesson, however, is about how the concept of tax home affects away-from-home deductions.  If Mr. Baca’s tax home remained in El Paso, then his travel and lodging costs could be taken as unreimbursed employee expenses.  But if his tax home was Midland, then the costs of travel from El Paso were just non-deductible commuting costs because, as Judge Holmes writes: “Baca’s job with AST did not require him to travel back and forth to Midland.” 

Mr. Baca argued that his work in Midland was temporary and not indefinite because each job call could be his last.  That created too much uncertainty about his AST employment to count that as anything other than temporary.  Put another way, the Bacas wanted to treat each call as a discrete job, a separate employment event.  Viewed that way, each call was temporary work because each call was certainly less than one year, even though, in the aggregate, jobs kept coming for four years.

Judge Holmes rejected that argument.  Mr. Baca was employed by AST.  That was the relevant employment event.  And he was employed for far longer than one year.  The two key facts supporting the indefinite nature of the job were (1) the steadiness of the work over time, and (2) the belly-dump business.  As to the first, Judge Holmes notes that Mr. Baca “spent an average of 16 hours a day, 4 days a week, from 2011 through 2014 working in Midland.  Some projects may have been shorter and some longer, but he spent the bulk of his time working for AST.”  As to the second, Judge Holmes found “at some point after his first year he felt some assurance that the work would continue.  Buying a belly dump and starting a business with it in Midland is evidence of such assurance.”  So Mr. Baca’s contemporaneous actions evidenced a belief that the job would last. 

The fact that Mr. Baca’s tax home was Midland simply made his travel a long commute and it thus became irrelevant whether he could substantiate those set of claimed expenses.

Lesson 2:  Married Couples Can Have Two Tax Homes

The Bacas testified that the uncertainty about how long the work would last made it infeasible to consider moving from El Paso to Midland, especially since Ms. Baca’s employment at the Bank was so steady and certain.  The finding that Mr. Baca’s tax home was Midland did not affect the location of Ms. Baca’s tax home.  It was still El Paso. 

The Bacas’ decision to stay in El Paso was a personal decision, because each spouse can have a different tax home.  If they had moved to Midland, Ms. Baca’s tax home would have still been El Paso and her travel costs would be non-deductible commuting costs.  Just as Mr. Baca’s job did not require him to live in El Paso, neither did her job require her to live in Midland.  The choice on whether to live in El Paso or Midland would therefore make no difference to the couple's deductions, although it might make a difference in their expected expenses.

Oil-field related jobs are notoriously uncertain, given the boom and bust cycles of the oil industry.  Given that uncertainly, it made lots of sense for the Bacas to keep their home in El Paso and surf the wave of jobs in Midland as long as possible.  But just because the decision was rational and based on a hard-nosed dollars and cents calculation doesn't mean diddly about where a person's tax home is.  The decision about who would have the long commute was a personal decision because each spouse’s job gave each a different tax home.

Lots of two-earner households face the same situation as did the Bacas.  Each spouse may work in a different location, thus creating two different tax homes.  In thinking about the costs and benefits to one spouse taking a job far, far away, couples should not count on being able to deduct the long commuting expenses from the income being earned. 

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.  His commute is four minutes.  Bad for the car battery but good for carbon emissions.

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@Bruce. Great question. Rev. Rul. 99-7 does a great job telling you what you need to consider to answer that question.

Posted by: bryan | Jul 30, 2019 11:55:13 AM

What would be the Tax Home consideration for a temporary assignment in another State (1000 miles away from Primary Home)?

Posted by: Bruce McBride | Jul 30, 2019 11:48:16 AM