United States: Attorney's "Tax Home" Was Not Where He Lived

In Soboyede v. Commissioner,¹ the United States Tax Court held that an attorney who lived in Minnesota could not deduct travel and lodging expenses associated with his work in Washington, DC. Despite residing in Minnesota, the Tax Court found that the taxpayer's principal place of business, and therefore his tax home, was Maryland. Accordingly, the taxpayer was not entitled to deduct Maryland lodging expenses that he reported on his Schedule C because he was not "away from home" within the meaning of § 162(a)(2) during that time.

Facts

The taxpayer is an attorney and is licensed to practice in both Minnesota and Washington, DC. In 2015, during the year at issue, he maintained solo law practices in Minnesota and in the Washington, DC area. Aside from a trip to Nigeria, the taxpayer divided his time in 2015 between these two locations. In 2015 the taxpayer spent at least 161 days in the Washington, DC area, 54 nonworking days in Nigeria, and at least 115 days in Minnesota.

The attorney earned $38,548 in wages from work performed in the Washington, DC area and $7,582 from work performed in Minnesota. In addition, he included with the Form 1040 a Schedule C reporting income and expenses from his practice of law. On the Schedule C he reported gross income of $10,650 and total business expenses of $26,816, which produced a net loss of $16,166. Included as business expenses were travel and lodging expenses incurred in Maryland. Following an examination of the taxpayer's 2015 Form 1040, the IRS determined that the taxpayer either had failed to substantiate, or was not otherwise entitled to deduct, many of the expenses reported on the Schedule C. Thereafter, the IRS issued a notice of deficiency disallowing, in part, the taxpayer's travel and lodging expenses.

Analysis

A taxpayer must satisfy the following requirements to deduct a travel-related expense under § 162: (1) the expense must be reasonable and not "lavish or extravagant under the circumstances"; (2) the expense must be incurred "while away from home"; and (3) the expense must be incurred in the pursuit of a trade or business.² Moreover, taxpayers must establish through adequate records or other sufficient evidence (1) the amount of the travel expense; (2) the time and place of the travel; and (3) the business purpose of the travel expense.³

The taxpayer was able to substantiate most of his travel and lodging expenses. However, the IRS asserted that the taxpayer's Maryland lodging expenses had not been incurred while the petitioner was "away from home," as required by § 162(a)(2). Specifically, the IRS argued that Maryland, not Minnesota, represented the taxpayer's tax home in 2015. The Tax Court stated that a taxpayer's "tax home" for purposes of § 162(a)(2) generally "means the vicinity of the taxpayer's principal place of employment [or business] and not where his or her personal residence is located."⁴ To determine a taxpayer's "tax home," the taxpayer's principal place of business, the court considered the following factors: (1) where he spent more of his time; (2) where he engaged in greater business activity; and (3) where he derived a greater proportion of his income.⁵ The court analyzed the taxpayer's income by location and days worked and concluded that although the taxpayer's home was in Minnesota, he had earned a greater portion of his total income in the Washington, DC area during the year at issue. Accordingly, the court concluded that the taxpayer's principal place of business, and therefore his tax home during 2015, was Maryland. Thus, the taxpayer was not entitled to deduct his Maryland lodging expenses that he reported because he was not "away from home" within the meaning of § 162(a)(2) during that time.

Footnotes

1. T.C. Summ. Op. 2021-3

2. § 162(a)(2); see Comm'r v. Flowers, 326 U.S. 465, 470 (1946); see also Comm'r v. Heininger, 320 U.S. 467, 475 (1943) (explaining that whether an expenditure fulfills these conditions is generally a question of fact).

3. § 274(d).

4. Mitchell v. Comm'r, 74 T.C. 578, 581 (1980) (emphasis added).

5. See, e.g., Montgomery v. Comm'r, 64 T.C. 175, 179 (1975), aff'd, 532 F.2d 1088 (6th Cir. 1976).