Defining “Home” for Tax Purposes: It’s Not Always Where You Live

Published Categorized as Federal Income Tax, Tax, Tax Deductions
There Is No Place Like Home (or Is There?), Houston Tax Attorney

Typically the common definition of terms is used. This helps those who are not lawyers to understand and follow the law. But there are instances where the legal definition of a common term differs from the common understanding of what the term means. The tax law has several of these.

When it comes to taxes, the term “home” doesn’t necessarily mean where you lay your head at night. In fact, the IRS defines “home” as a taxpayer’s principal place of business. This can have major implications for deductions and tax liabilities.

The recent Jordan v. United States (8th Cir. 2007) case provides an example of how the definition of “home” can impact tax returns.

Facts & Procedural History

The taxpayer was a Minnesota resident who worked as a pipefitter. His union sent him to work on construction jobs in Alaska for various periods exceeding one year. Jordan incurred significant travel expenses flying between Minnesota and job sites in Alaska.

On his tax return, the taxpayer claimed these travel costs as deductible business expenses under Section 162(a)(2). He argued his “tax home” was in Minnesota where he lived, making the Alaska travel a temporary work assignment away from home.

On audit by the IRS, the IRS disallowed the deduction, stating taxpayer’s tax home during the years at issue was Alaska, where he regularly worked. The taxpayer appealed the decision, which is the subject of this post.

The Vague Definition of “Home”

While “home” comes up frequently in tax rules, the tax code does not specifically define it. With no statutory definition, courts have stepped in to interpret the meaning of the term.

Some courts have tried establishing their own independent definitions of “home.” More often, judges defer to the IRS’s position that “home” means a taxpayer’s primary place of business. This viewpoint stems from Revenue Ruling 73-529, which states:

A taxpayer’s ‘home’ for purposes of section 162(a)(2) of the Code is located at his regular or principal (if more than one regular) place of business or employment, regardless of where he maintains his family residence.

The appeals court upheld the IRS’s position and denied the taxpayer’s travel expense deduction. The court reiterated the IRS definition: “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.”

Since the taxpayer spent over a year at job sites in Alaska, performing his regular duties, the court found Alaska was his tax home for those periods. His travel from Minnesota was not considered “away from home,” rendering the expenses non-deductible.

Broader Implications of “Tax Home”

While this case focused specifically on the definition of “home” for travel expense deductions, the IRS’s narrow interpretation can impact taxes in other ways:

  • Foreign earned income exclusion – To qualify, taxpayers must show their tax home is in a foreign country. The IRS may argue their home is still the U.S.
  • State taxes – Defining a primary place of business as one’s tax home can subject taxpayers to taxes in states where they don’t reside.
  • Business deductions – Expenses related to a home office at one’s residence may be limited if the IRS doesn’t deem it a primary place of business.

The stakes are high whenever the IRS’s strict definition of “home” comes into play. Taxpayers need to be aware of how this definition differs from common assumptions. With the right planning, they can often achieve desired outcomes despite the counterintuitive meaning of “home.”

Avoiding Pitfalls with the IRS Definition

So under IRS guidance and court cases like this, “home” is where you work, not necessarily where you live. This court case shows how taxpayers get tripped up by assuming that the term “home” means where they reside.

Knowing this, there are steps taxpayers can take to avoid this problem, such as:

  • Maintain a dedicated home office for your business to bolster that your residence is a principal place of work.
  • Ensure any out-of-town assignments are clearly temporary (under one year) and irregular.
  • Don’t claim deductions for commuting back to your residence. Only deduct travel tied directly to work activities.
  • Keep immaculate records proving time spent at different business locations.

The Takeaway

While perhaps not intuitive, the distinction between a residence and tax home is real and can have major tax consequences. With forethought and care, taxpayers can build a record to support their home as their primary place of business when warranted.

The stakes around defining “home” underscore the importance of strict attention to detail and documentation when claiming travel deductions. Don’t let the IRS definition of home catch you off guard.

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