By Melissa Fernley
With the sluggish economy and the extensive rebuilding along the East Coast
as a result of Hurricane Sandy, construction workers are traveling far and wide
to find jobs and take advantage of temporal opportunities. Beyond the physical
and emotional demands of working away from home, construction workers must also
consider the tax implications of earning income away from their tax home. While
in theory the expenses incurred during temporary employment are deductible from
individual income, the Internal Revenue Service and the courts have created
several stumbling blocks that require the taxpayer to pay close attention to the
duration and location of temporary work.
Under I.R.C. §162(a)(2), taxpayers are allowed to deduct unreimbursed
expenses incurred while working away from the tax home if the expenses are
ordinary and necessary and paid or incurred during the taxable year in carrying
on a trade or business. The IRS and state departments of revenue allow the
business travel deduction to give taxpayers a break when they are required to
essentially double their living expenses due to a job that takes them away from
their normal tax home.
The location of a taxpayer's tax home varies from court to court. The IRS and
United States Tax Court maintain that the metropolitan area surrounding a
taxpayer's principal place of business is his tax home.1 In contrast, the Second, Fifth, Sixth, Eighth,
and Ninth Circuits consider a taxpayer's personal residence to be his tax
Most taxpayers will have their principle place of business and their personal
residence within the same metropolitan area. However, some vocations involve
extensive temporary work in many different locations, such as traveling
salesmen, pilots, and in the case of the Kidd family, construction workers. In
these cases, where a taxpayer does not have a principle place of business, the
IRS has ruled that his personal residence, or “permanent place of abode,” is
considered his tax home. Alternatively, a taxpayer with no permanent place of
residence and no principle place of employment is considered an itinerant
worker, and his tax home travels with him.
To determine whether a taxpayer employed at a temporary job is truly “away
from home” for purposes of deducting travel expenses under I.R.C. §162(a)(2),
the court must ascertain the location of the taxpayer's “permanent place of
abode.” The IRS has developed three factors to answer this question, including:
(1) whether the taxpayer performs a portion of his business in the vicinity of
the residence and uses the residence as lodging during that business, (2)
whether the taxpayer's living expenses are duplicated when he is absent from the
residence, and (3) whether the taxpayer has members of his marital or lineal
family residing in the residence or, if single, has not abandoned the
residence.3 If a taxpayer satisfies all three
of the requirements, the location is the taxpayer's residence, and is treated as
his “tax home.” If a taxpayer can only meet two of the requirements, the IRS or
court will look at the surrounding facts and circumstances to make a
Once the tax home is established and it can thus be determined that the
taxpayer is working away from his tax home, the taxpayer must still show that
his work was of a truly temporary nature, which ultimately justifies the need
for a deduction for duplicate expenses. If a taxpayer's employment away from
home is determined to be not temporary but “indefinite,” he will not be able to
deduct the expenses because his tax home will have shifted to his place of
Whether a job is classified as temporary or indefinite is an issue of fact.
While I.R.C. §162(a) establishes the bright line rule that employment for more
than one year is per se indefinite, Rev. Rul. 99-7 states that employment
realistically expected to last and in fact lasting less than one year is
considered temporary “in the absence of facts and circumstances indicating
otherwise.” Each court evaluates these “facts” differently, and the United
States Supreme Court has never offered any explicit guidance on the question,
even in a case centering on the temporary-indefinite distinction.4
The Ninth Circuit, in Doylev. Comr.,5 has established a “reasonable probability”
standard when evaluating the facts of a case. Under this standard, if a taxpayer
knows of a reasonable probability of continued employment, the job is considered
Some courts use hindsight to evaluate whether a job or a series of jobs is
considered temporary or indefinite.6 Also, a
single job can be considered both temporary and indefinite at different times;
expenses are deductible during the period the job would be classified as
temporary, up until circumstances change and the job becomes indefinite.7
Questions remain as to how the courts will treat a series of temporary jobs
that add up to a year in the aggregate.8 If
the jobs are all under the same contractor, but located in different places, it
is easier to argue that they were each distinct opportunities for work away from
the tax home. If the jobs are under different contractors but in the same
location, it may be harder to justify the maintenance of a separate place of
residence elsewhere. As we will see in the Kidd case, the relationship
between contractors and the location of work opportunities are often the facts
on which a case turns.
In Kiddv. Oregon Dept. of Rev.,9 a husband and wife each claimed business
deductions for vehicle, food, and lodging expenses incurred while working their
out-of-state construction jobs. Oregon follows federal guidelines for deducting
such travel expenses, requiring that the travel be away from home, incurred in
connection with a legitimate business purpose, and reasonable and necessary. At
issue in this case was whether the couple's employment could be considered “away
from home.” The court's analysis hinged on whether the couple's employment was
“temporary,” which would allow them to take the deductions from their tax home
in Oregon, or “indefinite,” which would bar the deductions.
Carolyn Kidd was a construction worker who utilized her union to find and
accept jobs both in the area near her residence in Albany, Oregon and across the
union's broader territory, which included all of Oregon and several counties in
Southern Washington. After a construction job with Hoffman Structures in 2005,
which she acquired through the union, Carolyn was asked to join a 2006 project
in Portland, Oregon with the affiliated but legally independent company Hoffman
Construction. After less than a year with Hoffman Construction, Carolyn was
offered a job again with Hoffman Structures, also in the Portland area.10
In considering the nature of Carolyn's employment, the court looked at three
cases for guidance. First, the court looked at Moreyv. Dept. of
Rev.,11 an Oregon tax court case with a
similar fact pattern. In Morey,the tax court decided that the uncertainty
of a job in the construction business was not sufficient to qualify as temporary
employment for tax purposes, and noted that there were other opportunities
available to the taxpayer at his tax home.12
The court also looked at Wilson v. Comr.,13 a U.S. Tax Court case which considered a
taxpayer's series of employment positions with the same employer. The
Wilsoncourt decided that the entire duration of the relationship between
the employer and the taxpayer should be taken into account and that “where the
employee is highly regarded by the employer … the relationship between the two
parties is a continuing one, subject only to the availability of projects
requiring the employee's skills.”14 Finally,
the court adopted the Ninth Circuit “reasonable probability” standard, in which
knowledge of a reasonable probability of continued employment renders a job
Synthesizing the rationales of the three cases, the court ruled that while
Carolyn's employment with Hoffman Structures and Hoffman Construction in the
Portland area lasted less than a year in each case, and was thus not per
se indefinite under the bright-line rule, Carolyn knew of a reasonable
probability that she would remain in the Portland area with continued
employment, which rendered her jobs indefinite.15 Drawing on Morey, which gave weight to
the fact that the taxpayer had myriad opportunities for work near his tax home,
the court also noted that there was a low chance that Carolyn would receive work
in her tax home of Albany, making it more likely that she would need to seek a
job in Portland where sufficient work was available.16 The court also drew on the good relationship
between the taxpayer and construction contractor in Wilson, noting that
Carolyn was specifically requested for the Hoffman Construction/Structures jobs
because she had a good reputation with the companies, which increased her
chances of remaining in the Portland area.17
Ultimately, the court decided that Carolyn Kidd's tax home for the year at issue
was Portland, disallowing her deductions.
While the court's written analysis is dispositive, the analysis and debate
that took place before the trial offers more insight into what facts and
circumstances were considered important to the department and the court.
In a letter to the Kidds, the Department listed its reasons for denying the
Kidds a business deduction under I.R.C. §162.18 Not all of these reasons were considered by
the court. First, the department requested information about the Union's
requirement for physical presence when receiving dispatch orders. According to
the department, unions which use a phone or email notification process “have
reduced the number of instances where the Union hall was claimed as a tax
home.”19 The department's comment suggests
that the Kidd's Union location could be their tax home if they received their
orders in person rather than over the phone. Unfortunately for the Kidds, they
received their assignments remotely.
Next, the Department noted that “the tax law has no provision considering
economic or prevailing industry conditions.”20
In other words, the state of the economy has no bearing on the characterization
of a taxpayer's employment away from home. This was likely a response to a
letter written by Mr. and Mrs. Kidd, which stated that “it is impossible to know
where we are going to work, how long the project will last, or how long we will
work on any project … the best we can do is live in a central location [and] be
available and willing to go where the work is.”21
The Department also claimed that there was “no work” in the areas near the
Kidds' home, and that “all the projects in the state were in the Portland
vicinity requiring their expertise.”22 A Union
Dispatch Log included as a plaintiff exhibit includes a long list of employment
possibilities outside of the Portland area.23
While the department's claim seems a bit exaggerated, it does suggest that a
factor in considering the likelihood of continued employment is the availability
of jobs in the taxpayer's field.
Judy Dethloff, the Kidds' representative in the case, told Bloomberg BNA that
the questions which came up during the audit involved “how the two companies
were related and the length of employment. The court wanted to know if it was
all one employment period.” The court's analysis focused on Carolyn's chances of
employment in her tax home and her relationship with her employers; however,
Dethloff's observation suggests that the court was also considering Carolyn's
series of short jobs as possibly consisting of one, more permanent position.
Robert Kidd, like his wife, utilized the union to obtain jobs in
construction. He worked for four different employers in the early part of
2007.24 Each job was relatively short, and
within 30 minutes of the Portland city limits.
In determining whether Robert's jobs in 2007 constituted temporary or
indefinite work, the court used the same tests it applied to Carolyn. The court
acknowledged that none of the jobs lasted for more than a year, and thus were
not per se indefinite.25 The court also
said, however, that in Robert's case there was no evidence to suggest that there
was a “reasonable probability” that the jobs would last longer than a year.26 The court does not go into detail about how
they determined there was not a reasonable probability of continued
The key difference in the court's analysis of Robert's employment, other than
the general lack of explanation, is that the court did not focus on the
relationship between Robert and his employers, most likely because the jobs were
for completely separate entities and none of the employers were repeated. Under
these facts, it was easier for the court to believe that there was little chance
of Robert remaining in the job for more than a year.
The court did note that Robert's last 2007 job, as a field rep for the Union,
potentially held a “reasonable probability” of continued employment.27 Because Robert worked for the union again in
2008, albeit in a different capacity, the court may have seen this as a
continuing relationship with an employer. Indeed, Robert still holds his
position at the union as a field supervisor.
In his initial position as a field rep with the union, Robert had no office
at the union hall and was to work from home. However, towards the end of 2007
Robert was given a desk and office at the union headquarters.28 The introduction of an office into Robert's
employment with the union did not seem to have any effect on the court's
decision that the work as a field rep was temporary. Indeed, to an outside
observer, the progression from a temporary traveling setup to a more permanent
office setup would qualify as evidence of how highly he was regarded by his
employer, a factor which rendered Carolyn's employment indefinite. Nevertheless,
the court determined that Robert Kidd's tax home for the period at issue was his
place of residence in Albany, and allowed his deductions.
A letter from the union sheds light on why the court did not consider
Robert's employment indefinite.29 The union
writes that in 2007, they hired Robert to travel throughout the union's
jurisdiction retrieving hourly wage information for the Bureau of Labor and
Industry surveys. Only after the survey work was completed was Robert considered
for a second employment opportunity with different responsibilities.30 Judy Dethloff explains that “the job
description and location changed as he was trained.” Furthermore, Dethloff
notes, there was a “break in employment [of approximately three weeks] before he
was hired to a permanent position,” which was enough time to satisfy the
Dethloff also noted that Robert's prior employment had not been in the
Portland area, unlike Carolyn. Robert “had other employment in the two years
prior to the audit period including working in Albany for about one and a half
years, so the issue of work location was not as important to the court,”
Kidd demonstrates that the facts and circumstances the court chooses
to consider are not always consistent, and are not always related to previous
methods of analysis. Accordingly, the best way for a taxpayer to plan for
deductible travel expenses is to comply with the statutory law and case
precedent as closely as possible, taking as many jobs as possible close to home
to establish the taxpayer's permanent residence as his tax home. In addition,
the taxpayer should leave his family behind when traveling for temporary work,
and should take temporary jobs in varied locales so there can be no argument
that the taxpayer shifted his tax home to his latest or longest place of
employment. Finally, the taxpayer should attempt to take jobs that last under a
year in length, avoiding the bright line rule.
Ultimately, Kiddraises the issue of the court's policy approach
towards construction workers and those with unpredictable jobs. In the case at
hand, the fact that the court did not follow the bright line rule for Carolyn
Kidd makes the ruling suspect. Is it fair to classify Carolyn's work as
indefinite because she has a “good reputation” with her employer? From a policy
standpoint, might this encourage construction workers to be mediocre employees,
forced to follow the assignments of their unions regardless of whether they
enjoy or excel at the work to which they are assigned? Was the court more likely
to scrutinize Carolyn's employment, even though it was under a year in length,
because it was perhaps unconsciously swayed by the fact that Carolyn was a
married woman living away from her family, and could have avoided the travel
expenses altogether by working closer to home? While these questions may suggest
more extreme implications, they emphasize the fact that tax policy has a real
effect on behavior, and affects where a taxpayer chooses to live and do
The Kidds did not appeal their case, Judy Dethloff said, despite the fact
that most tax practitioners they spoke to believed that the Kidds were correct
in their position. The Kidds are back to their jobs in construction, a little
wiser to the often capricious nature of our tax code and courts.
Most states generally conform to the federal treatment of business expenses
as set forth in I.R.C. §162(a)(2). However, in many states the treatment of
I.R.C. §162 is irrelevant, because some do not impose an individual income tax
(AK, FL, NV, SD, TX, WA, WY), don't allow individual business tax deductions
(CT, IN, NH, NJ, OH, PA, TN, WV, WI), or calculate state income tax starting
from federal taxable income, which has already taken into account the business
deductions (CO, MN, ND, SC, VT). The following chart is a compilation of each
state's business deduction regime.
Business Deductions by the States
1 Rev. Rul. 56-49; Rev. Rul. 99-7
(exception for temporary work).
2 For seminal cases, seeRosenspan v. U.S., 438 F.2d 905 (2d Cir. 1971); Six v. U.S., 450
F.2d 66 (2d Cir. 1971); Beebe v. Comr., T.C. Memo 1971-330; Flowers v.
Comr., 148 F.2d 163 (5th Cir. 1945), rev'd on other grounds, 326 U.S.
465 (1946); U.S. v. LeBlanc, 278 F.2d 571 (5th Cir. 1960); Burns v.
Gray, 287 F.2d 698 (6th Cir. 1961); Comr. v. Janss, 260 F.2d 99 (8th
Cir. 1958); Coombs v. Comr., 608 F.2d 1269 (9th Cir. 1979); Wallace v.
Comr., 144 F.2d 407 (9th Cir. 1944).
3 Rev. Rul. 73-529.
4Peurifoy v. Comr., 358 U.S. 59
(1958), aff'g per curiam 254 F.2d 483 (4th Cir. 1957), rev'g27
T.C. 149 (1956).
5 354 F.2d 480 (9th Cir. 1966).
6SeeTrapp v. Comr., T.C.
Memo 1980-49; Taylor v. Comr., T.C. Memo 1980-376.
7SeeRev. Rul. 93-86, Johnson v.
Comr., T.C. Memo 1999-153.
8See, e.g.Mitchell v. Comr.,
T.C. Memo 1999-283, CCA 200025052.
9 TC-MD 111185N (Or. Tax Ct., Oct. 24,
10 Plaintiff Exhibit B, Union Report of
Work History, at page 1.
11 18 OTR 76 (2004).
13Wilson v. Comr., 82 TCM 899, WL
18 Oregon Dept. of Rev., Notice of
Deficiency Assessment (Aug. 5, 2011).
21 Plaintiff Exhibit G, Statement from
Robert and Carolyn Kidd.
22 Oregon Dept. of Rev., Notice of
Deficiency Assessment (Aug. 5, 2011).
23 Plaintiff Exhibit D, Union Dispatch Log
for 2007, Non-Portland Area.
24 Plaintiff Exhibit B, Union Report of
Work History, at page 2.
29 Plaintiff Exhibit C, Letter from Union,
March 4, 2011, at page 1.