IRS is winning in audits of business use of auto! But you could deduct more auto expenses!

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-687-9900 x101 Please consult with your professional tax CPA regarding your specific circumstances!
IRS has wised up to what many dentists, doctors and lawyers are doing to increase their auto business percentage and auto write off!

If your preparer has said “yes” to reducing your personal commuting mileage by telling you to first go to your bank to make a bank deposit, Your tax preparer does not know the definition of a “temporary work location.”

A temporary work location as a place where you will work for one year or less.
I do not think IRS would allow you to win by changing your bank every 11 months.
You are likely to go to a bank for more than one year which changes your travel to and from the bank as commuting personal mileage.
The One-year test is explained in Revenue Ruling 99-7. Please see the Revenue Ruling at the end of this document.
Revenue Rule 99-7 says: “In general, daily transportation expenses incurred in going between a taxpayer’s residence and a work location are nondeductible commuting expenses.” The ruling then goes on to say that those commuting expenses are deductible in the following circumstance:
If a taxpayer has one or more regular work locations away from the taxpayer’s residence, the taxpayer may deduct daily transportation expenses incurred in going between the taxpayer’s residence and a TEMPORARY work location in the same trade or business, regardless of the distance.
What is a solution? Internal Revenue Code 280A(c)(1)(A) explains that an administrative office at your home can convert your business to your home.
If your residence is the taxpayer’s principal place of business within the meaning of section 280A(c)(1)(A), you may deduct daily transportation expenses incurred in going between the residence and another work location, regardless of whether the other work location is REGULAR or TEMPORARY and regardless of the distance.

ISSUE
Under what circumstances are daily transportation expenses incurred by a
taxpayer in going between the taxpayer’s residence and a work location deductible
under § 162(a) of the Internal Revenue Code?
LAW AND ANALYSIS
Section 162(a) allows a deduction for all the ordinary and necessary expenses
paid or incurred during the taxable year in carrying on any trade or business. Section
262, however, provides that no deduction is allowed for personal, living, or family
expenses.
A taxpayer’s costs of commuting between the taxpayer’s residence and the
taxpayer’s place of business or employment generally are nondeductible personal
expenses under §§ 1.162-2(e) and 1.262-1(b)(5) of the Income Tax Regulations.
However, the costs of going between one business location and another business
location generally are deductible under § 162(a). Rev. Rul. 55-109, 1955-1 C.B. 261.
Section 280A(c)(1)(A) (as amended by § 932 of the Taxpayer Relief Act of 1997,
Pub. L. No. 105-34, 111 Stat. 881, effective for taxable years beginning after December
2
31, 1998) provides, in part, that a taxpayer may deduct expenses for the business use
of the portion of the taxpayer’s personal residence that is exclusively used on a regular
basis as the principal place of business for any trade or business of the taxpayer. (In
the case of an employee, however, such expenses are deductible only if the exclusive
and regular use of the portion of the residence is for the convenience of the employer.)
In Curphey v. Commissioner, 73 T.C. 766 (1980), the Tax Court held that daily
transportation expenses incurred in going between an office in a taxpayer’s residence
and other work locations were deductible where the home office was the taxpayer’s
principal place of business within the meaning of § 280A(c)(1)(A) for the trade or
business conducted by the taxpayer at those other work locations. The court stated
that “[w]e see no reason why the rule that local transportation expenses incurred in
travel between one business location and another are deductible should not be equally
applicable where the taxpayer’s principal place of business with respect to the activities
involved is his residence.” 73 T.C. at 777-778 (emphasis in original). Implicit in the
court’s analysis in Curphey is that the deductibility of daily transportation expenses is
determined on a business-by-business basis.
Rev. Rul. 190, 1953-2 C.B. 303, provides a limited exception to the general rule
that the expenses of going between a taxpayer’s residence and a work location are
nondeductible commuting expenses. Rev. Rul. 190 deals with a taxpayer who lives
and ordinarily works in a particular metropolitan area but who is not regularly employed
at any specific work location. In such a case, the general rule is that daily
transportation expenses are not deductible when paid or incurred by the taxpayer in
3
going between the taxpayer’s residence and a temporary work site inside that
metropolitan area because that area is considered the taxpayer’s regular place of
business. However, Rev. Rul. 190 holds that daily transportation expenses are
deductible business expenses when paid or incurred in going between the taxpayer’s
residence and a temporary work site outside that metropolitan area.
Rev. Rul. 90-23, 1990-1 C.B. 28, distinguishes Rev. Rul. 190 and holds, in part,
that, for a taxpayer who has one or more regular places of business, daily
transportation expenses paid or incurred in going between the taxpayer’s residence
and temporary work locations are deductible business expenses under § 162(a),
regardless of the distance.
Rev. Rul. 94-47, 1994-2 C.B. 18, amplifies and clarifies Rev. Rul. 190 and Rev.
Rul. 90-23, and provides several rules for determining whether daily transportation
expenses are deductible business expenses under § 162(a). Under Rev. Rul. 94-47, a
taxpayer generally may not deduct daily transportation expenses incurred in going
between the taxpayer’s residence and a work location. A taxpayer, however, may
deduct daily transportation expenses incurred in going between the taxpayer’s
residence and a temporary work location outside the metropolitan area where the
taxpayer lives and normally works. In addition, Rev. Rul. 94-47 clarifies Rev. Rul. 90-
23 to provide that a taxpayer must have at least one regular place of business located
“away from the taxpayer’s residence” in order to deduct daily transportation expenses
incurred in going between the taxpayer’s residence and a temporary work location in
the same trade or business, regardless of the distance. In this regard, Rev. Rul. 94-47
4
also states that the Service will not follow the decision in Walker v. Commissioner, 101
T.C. 537 (1993). Finally, Rev. Rul. 94-47 amplifies Rev. Rul. 190 and Rev. Rul. 90-23
to provide that, if the taxpayer’s residence is the taxpayer’s principal place of business
within the meaning of § 280A(c)(1)(A), the taxpayer may deduct daily transportation
expenses incurred in going between the taxpayer’s residence and another work
location in the same trade or business, regardless of whether the other work location is
regular or temporary and regardless of the distance.
For purposes of both Rev. Rul. 90-23 and Rev. Rul. 94-47, a temporary work
location is defined as any location at which the taxpayer performs services on an
irregular or short-term (i.e., generally a matter of days or weeks) basis. However, for
purposes of determining whether daily transportation expense allowances and per diem
travel allowances for meal and lodging expenses are subject to income tax withholding
under § 3402, Rev. Rul. 59-371, 1959-2 C.B. 236, provides a 1-year standard to
determine whether a work location is temporary. Similarly, for purposes of determining
the deductibility of travel away-from-home expenses under § 162(a)(2), Rev. Rul. 93-
86, 1993-2 C.B. 71, generally provides a 1-year standard to determine whether a work
location will be treated as temporary.
The Service has reconsidered the definition of a temporary work location in Rev.
Rul. 90-23 and Rev. Rul. 94-47, and will replace the “irregular or short-term (i.e.,
generally a matter of days or weeks) basis” standard in those rulings with a 1-year
standard similar to the rules set forth in Rev. Rul. 59-371 and Rev. Rul. 93-86.
If an office in the taxpayer’s residence satisfies the principal place of business
5
requirements of § 280A(c)(1)(A), then the residence is considered a business location
for purposes of Rev. Rul. 90-23 or Rev. Rul. 94-47. In these circumstances, the daily
transportation expenses incurred in going between the residence and other work
locations in the same trade or business are ordinary and necessary business expenses
(deductible under § 162(a)). See Curphey; see also Wisconsin Psychiatric Services v.
Commissioner, 76 T.C. 839 (1981). In contrast, if an office in the taxpayer’s residence
does not satisfy the principal place of business requirements of § 280A(c)(1)(A), then
the business activity there (if any) is not sufficient to overcome the inherently personal
nature of the residence and the daily transportation expenses incurred in going
between the residence and regular work locations. In these circumstances, the
residence is not considered a business location for purposes of Rev. Rul. 90-23 or Rev.
Rul. 94-47, and the daily transportation expenses incurred in going between the
residence and regular work locations are personal expenses (nondeductible under §§
1.162-2(e) and 1.262-1(b)(5)). See Green v. Commissioner, 59 T.C. 456 (1972); Fryer
v. Commissioner, T.C. M. 1974-77.
For purposes of determining the deductibility of travel-away-from-home
expenses under §162(a)(2), Rev. Rul. 93-86 defines “home” as the “taxpayer’s regular
or principal (if more than one regular) place of business.” See Daly v. Commissioner,
72 T.C. 190 (1979), aff’d, 662 F.2d 253 (4th Cir. 1981); Flowers v. Commissioner, 326
U.S. 465 (1946), 1946-1 C.B. 57.
HOLDING
In general, daily transportation expenses incurred in going between a taxpayer’s
6
residence and a work location are nondeductible commuting expenses. However, such
expenses are deductible under the circumstances described in paragraph (1), (2), or
(3) below.
(1) A taxpayer may deduct daily transportation expenses incurred in going
between the taxpayer’s residence and a temporary work location outside the
metropolitan area where the taxpayer lives and normally works. However, unless
paragraph (2) or (3) below applies, daily transportation expenses incurred in going
between the taxpayer’s residence and a temporary work location within that
metropolitan area are nondeductible commuting expenses.
(2) If a taxpayer has one or more regular work locations away from the
taxpayer’s residence, the taxpayer may deduct daily transportation expenses incurred
in going between the taxpayer’s residence and a temporary work location in the same
trade or business, regardless of the distance. (The Service will continue not to follow
the Walker decision.)
(3) If a taxpayer’s residence is the taxpayer’s principal place of business within
the meaning of § 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses
incurred in going between the residence and another work location in the same trade or
business, regardless of whether the other work location is regular or temporary and
regardless of the distance.
For purposes of paragraphs (1), (2), and (3), the following rules apply in
determining whether a work location is temporary. If employment at a work location is
realistically expected to last (and does in fact last) for 1 year or less, the employment is
7
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, regardless of whether it actually exceeds 1 year. 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.
The determination that a taxpayer’s residence is the taxpayer’s principal place of
business within the meaning of § 280A(c)(1)(A) is not necessarily determinative of
whether the residence is the taxpayer’s tax home for other purposes, including the
travel-away-from-home deduction under § 162(a)(2).
EFFECT ON OTHER DOCUMENTS
Rev. Rul. 190 and Rev. Rul. 59-371 are obsoleted. Rev. Rul. 90-23 and Rev.
Rul 94-47 are modified (regarding the definition of temporary work location) and
superseded. With respect to issues (2) and (3) in Rev. Rul. 90-23 (regarding the gross
income and employment tax treatment of reimbursements for employee daily
transportation expenses), see § 1.62-2 regarding reimbursements in general, and Rev.
Proc. 97-58 (particularly sections 3, 9, and 10), 1997-2 C.B. 587 (or any successor),
regarding reimbursements using the optional business standard mileage rate. Rev.
Rul. 93-86 is distinguished.
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DRAFTING INFORMATION
The principal author of this revenue ruling is Edwin B. Cleverdon of the Office of
Assistant Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue ruling, contact Mr. Cleverdon at (202) 622-4920 (not a toll-free
call).ess miles.

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Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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