Lesson From The Tax Court: Temporary vs. Indefinite Commutes

When I worked in downtown Washington D.C. I had a 50+ minute commute from my home in Wheaton Md.  But I did not have to drive.  I walked 15 minutes to Wheaton metro, had a 30+ minute metro ride to Federal Triangle, and then a 5 minute walk to my office.  That was a lovely commute.  Longish but low-stress.

Now I work at Texas Tech University in Lubbock.  This is not a town for walking.  So I drive to work.  But it’s only 4-6 minutes from my home.  Sweet!  I really cannot complain. 

Lots of folks, however, have the worst of both worlds: they have a long commute and they have to drive it.  That can be stressful.  And expensive.

It is not surprising that folks with really long drive commutes might think they should be able to deduct their commuting costs, especially if they are at a job where continued employment may be uncertain.  To them, their work seems temporary because they know it might end at any time.  But in Joseph Michael Ledbetter and Ashley Jones Ledbetter v. Commissioner, T.C. Summ. Op. 2023-19 (May 25, 2023) (Judge Paris), we learn that just because work might end at any time does not make it temporary.  It makes it indefinite.  And while travel to a temporary work location outside the area where the taxpayer lives may be deductible, travel to an indefinite work location is not.  Details below the fold.

Law: Deductible Travel vs. Non-Deductible Commute
Section 162(a) allows deductions for “traveling expenses...while away from home in the pursuit of a trade or business.”  That is part of the general Congressional policy to tax income after permitting taxpayers to first deduct the costs of producing the income.  When business makes a taxpayer travel away from home, that is a deductible expense.

Taken literally, §162(a) would permit deduction for the cost of going to work each day.  Especially now that more employers are permitting remote work, you can understand why many taxpayers might see the costs of fighting rush hour as an expense that is incurred “away from home” in order to produce income.

But §162(a) has never been read literally.  That is because §262 denies deductions for “personal, living, or family expenses.”  The choice of where to live is a personal choice.  That makes the expenses of getting to work from your home personal expenses.  That is why Treas. Reg. 1.262-1(b)(5) says: “The taxpayer’s costs of commuting to his place of business or employment are personal expenses and do not qualify as deductible expenses.”  And that is why the Supreme Court has told us not to take §162 literally. "More 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, 304 (1967).

If you cannot take §162 literally, then you have to distinguish between non-deductible commuting and deductible travel away from home.  Over the years the IRS and courts have built up a robust body of guidance on that subject.  Over 24 years ago the IRS issued Rev. Rul. 99-7 that synthesized much of the prior law.  I think it's great guidance and is worth your time to read and master.  Even though it does not have the same authority as a statute or regulation, it has turned out to be very influential on the Tax Court’s approach to the issue and its concepts have become embedded in Tax Court precedent.

One recurring issue is what happens when a taxpayer’s work location changes but they don’t move their personal residence.  The IRS and the courts deal with that through a timing concept: if the change in work locations is temporary, and to a place outside of the area the taxpayer lives, then those costs can be deductible travel away from home.  I like how Judge Panuthos framed this issue in Hirsch v. Commissioner, T.C. Summ. Op. 2016-37: “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.”

The trick is to draw the line between “temporary” and “indefinite.”  Temporary work generates the deduction.  Indefinite work does not.  That is, once you are working somewhere for long enough, your decision to not move any closer becomes a personal choice, transforming the expenses of getting to work from “travel away from home” to “commuting.” See e.g. Walker v. Commissioner, 101 T.C. 537, 549-550 (1993).  We got a lesson on that in Lesson From The Tax Court: How A New Work Location Becomes A Tax Home, TaxProf Blog (July 29, 2019).

How long is long enough?  Rev. Rul. 99-7 adopts a 1-year “realistic expectation” test:

“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.... If employment at a work location initially is realistically expected to last for 1 year or less, but at some later date the employment is realistically expected to exceed 1 year, that employment will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that the taxpayer’s realistic expectation changes, and will be treated as not temporary after that date.”  (emphasis supplied).

As alert readers will see from the emphasized language, the 1-year rule is not a hard and fast rule but is instead highly contingent on the taxpayer’s particular facts and circumstances.

So let’s take a look at the facts and circumstances relevant to Mr. and Ms. Ledbetter.

Facts:
The tax years at issue are 2015 and 2016.  During those years Mr. Ledbetter, a union craft sheet metal worker, was employed by a company called Day & Zimmermann.  His employer had a contract to provide services for the Tennessee Valley Authority’s Browns Ferry Nuclear Plant in Alabama.  It is not entirely clear from the opinion but apparently the contract was a year-to-year deal.  Plus, the services provided by the employer may not always require sheet metal workers.  Thus, “Day & [Zimmermann] did not hire sheet metal workers on a permanent basis.  Rather, the length of employment varied with the size of the project and the availability of funds.” Op. at 2.  And Mr. Ledbetter’s contract with Day & Zimmermann explicitly provided that  “[a]ll contract work is considered temporary assignments.”  Op. at 7.

Mr. Ledbetter had to drive 92 miles to get to his job: an 184 mile round-trip.  In 2015 he worked at Browns Ferry 235 days. In 2016 he worked there 252 days.  Mr. Ledbetter also had to drive while on site.

For both 2015 and 2016 the Ledbetters took deductions for both (1) Mr. Ledbetter’s mileage driving to Browns Ferry and (2) his on-site driving.  On audit, the IRS disallowed the deduction for (1) but allowed a deduction for (2).

The Ledbetters timely filed a petition in Tax Court which takes us to ....

Lesson: Indefinite is Not Temporary
Mr. Ledbetter pointed to the language in his Day and Zimmermann contract to argue that his work assignments at Browns Ferry were temporary assignments to a location outside of his home area.  He explained that the TVA contractors had changed over time and that between 2012 and 2019 he had been employed by five different contractors, the last one being Day and Zimmermann.  Op. at 7.  The assignments were always contingent on funding and there was always the possibility of work stoppages.

Judge Paris was not persuaded.  She notes that Mr. Ledbetter had worked at Browns Ferry steadily from 2012 through 2019.  During all that time there was only one four month layoff and after 2014 there was “no substantial break in his employment.” Op. at 7.  Moreover for the two years at issue “the longest break between workdays was 9 days.”  Op. at 3.

Those facts and circumstances made it unrealistic for Mr. Ledbetter, in 2015 and 2016, to think his employment at Browns Ferry would last less than one year.  Writes Judge Paris: “While it is true that Mr. Ledbetter’s work assignments were indefinite in length, it cannot be said that his employment at the Browns Ferry Nuclear Plant was temporary as that term is defined by the caselaw. *** The Court therefore concludes that Mr. Ledbetter’s employment...was indefinite and not temporary.” Op. at 7.

Bottom Line: Indefinite work is when you have no reason to think the work will end at any particular time.  In contrast, temporary work is when you have a realistic expectation that it will end, and end within one year.  Yes, all employment is temporary, but only in the same sense that life itself is temporary.  Knowing that you will die someday is quite different than being diagnosed with a fatal disease and being told that you cannot realistically expect to live more than a year.

Coda: Mr. Ledbetter’s one-way travel was 92 miles.  That is definitely a long commute but nothing compared to Hector Baca’s 300 mile trips from El Paso to Midland, TX, which trips Judge Holmes found to be a non-deductible commute, using much the same approach as Judge Paris here.  See Baca v. Commissioner, T.C. Memo. 2019-78. 

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Bryan Camp is the George H. Mahon Professor of Law at Texas Tech University School of Law.  He invites readers to return each Monday (or Tuesday if Monday is a federal holiday) to TaxProf Blog for another Lesson From The Tax Court.