Paul L. Caron

Monday, August 9, 2021

Lesson From The Tax Court: Trailer Home Is Union Electrician’s Tax Home

Camp (2017)The concept of tax home can be elusive because it is so dependent on facts and circumstances. In William Geiman v. Commissioner, T.C. Memo. 2021-80 (June 30, 2021), Judge Urda teaches us which facts and circumstances are important in determining the tax home of a union member.  There, the Court finds that the taxpayer’s trailer home was also his tax home even though he did no work in the town where the trailer home was located.  This case may give us a useful way to approach a tax home determination, by asking where was the taxpayer’s last known tax home and then seeing if the facts of the year in question changed the answer.   See if you agree.  Details below the fold.

Section 162 permits a deduction for “travel expenses away from home.”  The Supreme Court has long told us that "[m]ore than a dictionary is...required to understand the provision here involved, and no appeal to the `plain language' of the section can obviate the need for further statutory construction." United States v. Correll, 389 U.S. 299 at 304 (1967).

To understand how the statute applies we need to understand the nuanced policy behind that seemingly simple language: only those travel expenses that are in excess of or duplicative of non-deductible personal living expenses are deductible.  See generally Rosenspan v. United States, 438 F.2d 905 (2d Cir. 1971) (reviewing history of deduction).  This nuance is required by §262’s disallowance of deductions for personal expenses.  The problem with travel expenses is that they are basically personal expenses (meals, lodging, transportation).  The nuanced policy therefore requires accounting for what ought to be deducted and what ought not to be deducted.

You see this nuanced policy throughout the history of the deduction.  Before 1921, there was no explicit statutory basis to deduct travel expenses.  The applicable Treasury Regulations permitted taxpayers to deduct travel expenses but only to the extent that they could show the relevant living expenses (meals and lodging) were “in excess of any expenditures ordinarily required for such purposes when at home.” See T.D. 3101, quoted in Rosenspan, 438 F.2d at 908.

These early regulations required taxpayer to compute the “excess” personal expenses caused by travel.  The regulations even gave a formula.  Awkward.  So Treasury asked Congress to simplify the deduction and in 1921 Congress added the language now in §162, permitting taxpayers a deduction for the entire amount of travel costs.  See Correll, supra, at note 6.

The 1921 statutory language, however, still limited the deduction to “travel away from home” and courts interpreted that language as creating two tests in order to separate deductible business expenses from non-deductible personal expenses.  First, courts looked to see whether the taxpayer was incurring the expenses “because of” business.  See e.g. Commissioner v. Flowers, 326 U.S. 465 (1946) (no deduction for taxpayer whose employment moved to a different city but who chose for personal reasons to remain in original city).  That is where we get the notion of “tax home” as a term of art: it’s where you need to live to work.  See Bryan Camp, Lesson From The Tax Court: How A New Work Location Becomes a Tax Home, TaxProf Blog, (July 29, 2019).  Second, courts looked to see whether taxpayers were actually incurring duplicative expenses.  See e.g. Rosenspan, supra, where the court did not permit a deduction for an itinerant salesman who had no home to be away from.

The 1921 statute expanded the amounts that taxpayers could deduct when traveling away from home from only amounts in excess of "normal" personal expenditures, to the full amounts spent on the trip.  Since then, Congress has cut back, notably in evil §274 which not only cuts the allowance for meals in half, §274(n), but also generally creates stringent substantiation requirements, §274(d).  See Lesson From The Tax Court: The Structure of Substantiation Requirements, TaxProf Blog (June 1, 2021) (explaining that taxpayers must not only prove up the fact of an expenditure but must also prove the proper nexus between the expenditure and the statute permitting deduction. and then must prove the fact of the expenditure).

As a result, to successfully deduct travel expenses, a taxpayer must first establish the appropriate nexus by proving the time, place and business purpose of the travel.  Then for most expenses a taxpayer must have the proper receipts to prove the actual expenditures.  However, for some expenses taxpayers can take deductions without receipts.  Specifically, for transportation by car, taxpayers may apply the IRS standard mileage rate to their substantiated business miles.  And for meals, taxpayers can elect to deduct “an amount computed at the federal M&IE rate for the locality of travel for each calendar day or partial day the employee or self-employed individual is traveling away from home.”  Rev. Proc. 2011-47 §4.03.  For taxpayers who are reimbursed by their employer, they can also use a reasonable per diem for their lodging expenses, but taxpayers who are not reimbursed by an employer or who are self-employed must have receipts.  Id.  There is no “per diem” substitution for them for lodging.

The tax year at issue is 2013.  At that time, Mr. Geiman had lived in Clifton, a small town in Mesa County, CO for at least 6 years.  He owned a mobile home in Clifton and owned rental property in nearby Grand Junction.  He claimed a $7,000 home mortgage interest deduction on his 2013 return which the IRS did not contest.

Mr. Geiman was an electrician and member of Local 969 of the Int’l Brotherhood of Electrical Workers (IBEW).  As a member of Local 969 he was entitled to priority status for jobs in the Local’s area.  He could also get jobs through other IBEW Locals.  He worked some Local 969 jobs in 2012 with the last one being in December.

During 2013, however, there were no local jobs so Mr. Geiman sought and obtained employment through other Locals.  During 2013 he was employed (by two different employers) at jobs in Cheyenne, one for the last week in January and the other from February to May.  After May he returned to Clifton but could still find no employment there.  In August he found employment in the greater Denver area with Sturgeon Electric Co. who used him on a series of jobs for the rest of the year.

On his 2013 tax return Mr. Geiman claimed travel away from home expenses as follows: $15,120 for lodging, $3,480 for meals, and $18,594 for mileage.  The IRS denied them all and Mr. Geiman petitioned the Tax Court.

Lesson:  Look For the Union Label?
The IRS argued that Mr. Geiman was not entitled to §162 deductions for travel away from home because in 2013 he simply had no “tax home.”  He was just an itinerant electrician, traveling to where-ever he could find work.

Judge Urda disagreed.  Determination of a taxpayer’s tax home is a facts and circumstance test, he said, explaining that: “Specifically, we have examined whether the taxpayer (1) incurs duplicate living expenses while traveling and maintaining the home, (2) has personal and historical connections to the home, and (3) has a business justification for maintaining the home.”  Op. at 13.

Two facts seem to have been particularly persuasive to Judge Urda.  First, Mr. Geiman owned the place where he lived in Clifton.  That meant he had expenses, including his mortgage, maintenance and upkeep, and property taxes.  Second, and perhaps more importantly, Mr. Geiman needed to live in Clifton in order to work because he belonged to Local 969.  It was through the Local that he was able to obtain work and had obtained work in the years before 2013.  Loyalty to the Local was important; thus that was the business reason for continuing to maintain a home in Clifton.  It’s where he needed to live to be able to work, even if in 2013 that meant he worked a whole series of temporary jobs in different places.  He always returned to his Local 969 roost, however, to wait for the next job.

Relying heavily on those two facts, Judge Urda found that Mr. Geiman’s trailer home was his tax home for purposes of §162 deductions for travel away from home.   So Mr. Geiman was able to deduct: (1) a per diem amount for his substantiated business days away from Clifton; (2) the lodging costs for which he had receipts; and (3) the business mileage amount for the miles he could substantiate (Judge Urda helped him out here by taking judicial notice of the distance between Clifton and some of the work sites).

Comment 1:  A Dynamic Approach to “Tax Home”?
Towards the end of his tax home analysis Judge Urda notes that “Mr. Geiman’s home local also had been direct source of a job in Grand Junction as recently as December 2012, distinguishing this case from others in which a taxpayer had little hope of finding employment hear his residence.”

Notice what Judge Urda does here.  He looks outside the confines of the year in question.  I think that doing so might help a tax home analysis.  A tax home is not a static concept but a dynamic concept.  Thus, one might first determine the taxpayer’s last known tax home and then decide whether, for the year in question, the tax home had changed.   Here, for example, Mr. Geiman’s membership in Local 969 had provided employment prior to 2013 and so that would be his last known tax home.  Further, since Mr. Geiman had only a series of temporary jobs in widely different geographic areas in 2013, it did not appear his tax home had changed.

Notice how this might work in the next year, 2014.  It appears that from August to December 2013 Mr. Geiman had been employed by the same Denver employer.  If that employment continued in 2014 then query whether it would change his tax home to Denver for 2014, regardless of his membership in Local 969.  I don’t know Union rules but if the Denver employer kept him on I would think at some point he would be obligated to transfer his Local membership as well.  Then he would be all in in Denver and maintaining his home in Clifton would become a personal choice.

This idea of looking first for the last known tax home is similar to how many law profs teach the concept of domicile in Civil Procedure.  Yeah, you attorneys out there remember Civil Procedure!  There, you are sometimes trying to figure out where a party to a lawsuit is “domiciled” in order to figure out whether a federal court has power to hear the lawsuit under its 26 U.S.C. §1332 diversity jurisdiction.  The formal rule is that a person’s domicile for §1332 purposes is where they are physically present and have an intent to stay.  But I and others teach students to first figure out a person’s last known domicile and then seeing if they have changed it.  Like the idea of a tax home, the idea of domicile is a dynamic concept, not a static one.

Comment 2: Why Not Weekends??
Judge Urda allowed Mr. Geiman a per diem deduction for his business days but that did not include “the 40 weekend days during this period as Mr. Geiman neither testified nor introduced any other evidence that showed his whereabouts during the relevant weekends, much less established any business purpose.”  Op. at 17.

When a taxpayer is on international travel, the regulations contain what I call “the weekend rule.”  The rule is in Treas. Reg. 1.274-4(d)(2)(v) which provides that when business occurs on a Friday and then on the following Monday, the intervening weekend days are treated as business days as well.

I could find no similar rule for domestic travel, but it would seem a reasonable rule for the per diem calculation, especially if coupled with some kind of a Correll-like sleep/rest/distance rule.  And I may not have looked hard enough.  For example, there may be such a rule for employer reimbursement purposes.  I recall that when I was on travel status during my federal government days, I got to count weekends as business days when I had work on both sides.

But some kind of a rule here seems warranted.  At some point staying in temporary job location over the weekend makes more business sense than traveling back home on Friday or Saturday and then back again on Sunday.  When that happens, then perhaps the weekend days should be counted as business days.  After, that home mortgage keeps on working even during weekends.

Here, for example, Cheyenne was some 350 miles from Clifton, about a 6 hour drive according to Google.  At the business mileage rate of $0.565 per mile in 2013, that comes to almost $400.  If Clifton was Mr. Geiman’s tax home, it would seem unquestioned that driving back and forth on weekends would be business miles and he would be entitled to a $400 deduction (assuming proper substantiation) for the deemed expense.  The daily lodging and per diem amounts for Cheyenne, however, would seem much cheaper.  If so, then perhaps those weekend days should count as business days.

I welcome any comments on this idea, especially comments that point out authority allowing weekends to count as business days in domestic travel away from home scenarios.

Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School Thereof.  He invites readers to return each week to TaxProf Blog for another Lesson From The Tax Court.

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