There is no Place Like Home (or is There?)

Have you ever said something like “I can’t wait to go home?” If so, you may not know what the term “home” means. According to the IRS, the term “home” means the taxpayer’s “principal place of business.” I am guessing that very few (if any) taxpayers consider their place of business their home.

Our federal Tax Code does not define the term “home,” even though it comes up in several contexts (such as whether travel expenses are deductible, whether income is excluded from income taxation pursuant to Section 911, and whether one or more states are able to impose their income and other tax on certain taxpayers).

Absent a statutory definition, various courts have stepped in to define the term. Some courts have tried to formulate their own definition for the term “home.” Other courts simply accept the definition put forth by the IRS (see, e.g., Jordan v. United States). In Jordan, the Eighth Circuit Court of Appeals states:

A taxpayer’s “home” … “is his principal place of business, and the taxpayer is ‘away from home’ when required to travel to a vicinity other than his principal place of business for temporary work.” As an exception to this rule, a taxpayer may also be considered “away from home” if his “‘employment outside the area of his regular abode will be for a ‘temporary’ or ’short’ period of time . . . .’” With regard to the temporary employment situation, however, “the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year.”

In this particular case, the taxpayer lived in Minnesota and his employer paid for him to commute to Alaska for work over a period that exceeded one year. The court said that the travel expenses to travel to Alaska were not deductible becuase the taxpayer’s “home” was in Alaska.

It seems the fear is that if the term “home” were to be defined in a way that is logical (i.e., to mean where the taxpayer actually lives), then taxpayers would opt to live in remote locations and use their travel expense deductions to offset their taxable income - which would make U.S. business less productive at the expense of the U.S. fisc (i.e., everyone would live in Hawaii and work in the mid-west and deduct the travel expenses).

With that said, taxpayers can easily plan for the rule. For example, the analysis in Jordan would change dramatically if the taxpayer had a “home office” in his personal residence in Minnesota. In that case he may have been able to successfully argue that his “home” really was in Minnesota, where he lived, becuase his business was also there - especially if he kept in contact with his “home office” via the internet and by making regular visits to the “home office.” Sound absurd? This may sound like semantics, but it isn’t. The tax consequences are real and the IRS supports the position (see Rev. Rul. 99-7).