Travel Expenses When You Have One Client

It is an issue I know well: when are your away-from-home travel expenses deductible?

Granted, this issue has a lot less lift underneath it now that miscellaneous itemized deductions are disallowed, but it can still affect the self-employeds, including partners and LLC members.

What sets it up is the concept of a “tax home.”

This term does not mean what you would first think.

A tax home is primarily an economic concept: where do you earn your paycheck? Depending on that answer, you may or may not have deductible travel expenses.

Say that you live in northern Kentucky. Your job is in San Francisco. Every Sunday you catch a plane out, and every Friday you return home.

COMMENT: I am not making this up. I had a client who did this – for a while. It was a VERY good paycheck.

You do not have deductible travel. You earn your paycheck in San Francisco. You are not travelling away from your tax home. You are travelling away from your residence, but in this case your residence is not your tax home.

Let’s mix it up. Say that you work one week in San Francisco and one week from Kentucky. Have you moved the needle?

You may have.

Let’s mix it up again.

Say you have five clients. One week you travel to San Francisco. Another week you travel to Nashville. One week you stay home and work on your three other clients.

Have you moved the needle?

Yep.

When a taxpayer does not have a permanent place of business but rather is employed by various clients and at different locations, the default rule is that the taxpayer’s residence is deemed the tax home. This is the Zbylut case, and feel free to call me on how to correctly pronounce the name.

I am looking at the Brown case (TC Memo 2019-30).

Brown was based out of Atlanta. He was a business consultant working as a CFO. If you needed his skill set but not a full-time CFO, Brown might be your guy. He had several clients over several years, and in 2012 he picked up a sweet multiyear contract in New Jersey.

Two key facts:

(1)  For 2012 and 2013, his only business income was from New Jersey.

(2)  And wouldn’t you know that the IRS audited his 2012 and 2013 returns.

Brown argued that New Jersey was a temporary gig.

In the sense of eternity, he is right. In real time, however, the contract was for three years. The IRS considers one year to be the demarcation between temporary and indefinite. There is probably no deduction if you go indefinite.

But New Jersey could terminate the contract, argued Brown.

Could but not likely, replied the Court.

Brown then wanted to rely on Zbylut.

The IRS wanted to see other paychecks.

Brown argued that in 2013 he started working one week in New Jersey and one week at home.

The IRS wanted to see his travel and other records.

Which he never provided. Why? Who knows.

He argued that he was working on other clients and that focusing solely on cash received during the period under audit was misfocused.

Yep, I get it. Maybe he could not invoice until a job was complete or materially so. Or some client stiffed him.

The Court paused. Provide us a schedule or calendar with client meetings, work assignments, business-related tasks, correspondence. Help us out here.

That seems reasonable. Surely he can come up with telephone records, exchanged e-mails, any snail mail correspondence….

Brown provided nothing.

Folks, the Tax Court has a long-standing rule-of-thumb:

If you fail to produce documentation in your possession that would be favorable to you, the Court will take the presumption that the documentation, if presented, would be unfavorable to you.

And that is what the Court did: it ruled against Brown.

He did not lose because of uninterpretable technical issues. He lost for the most basic reason: he provided no support or documentation for his position.

And I suspect I know why: he really had only one gig and that gig was in New Jersey. There was no travel as defined in the tax Code. His tax home locked arms with his paycheck and they both moved to New Jersey. It’s OK.

But there is no tax deduction.