Traveling Steamfitter Properly Deducted Expenses While Away from Home

(Parker Tax Publishing March 2022)

The Tax Court held that a union steamfitter who travelled for work was entitled to deduct meal and lodging expenses while travelling away from his home after concluding that the taxpayer's residence in Yakima, Washington was his tax home. Applying the three factors set forth in Rev. Rul. 73-529, the court found that the taxpayer (1) incurred duplicate living expenses while traveling and maintaining his home in Yakima, (2) had personal and historical connections to his home in Yakima, and (3) had a business justification for maintaining the home in Yakima because his membership of the Yakima union local gave him access to jobs within the union's expansive territory. Harwood v. Comm'r, T.C. Memo. 2022-8.

Background

James Harwood is a steamfitter and brazier who lives with his wife, Connie, in Yakima, Washington. Harwood joined Plumber and Steamfitters Local 598 (Local), headquartered in Pasco, Washington, in the 1970s. The Local's territory straddles southern Washington and northern Oregon. Harwood, a Yakima native, loved his hometown and took great pride in raising a family there with his wife. Harwood's work often required that he leave Yakima for significant chunks of time, but he made a concerted effort to spend weekends at home in Yakima even while on the job. He believed that his family and his economic prospects would both suffer were he to move his home whenever his work location shifted.

During 2015-2017, Harwood worked for five separate employers with intermittent periods of unemployment between projects. In 2015, James worked two stints at Temp. Control Mechanical in Quincy, Washington: a 6-1/2 month project from January through July and another job from August through September. He began the first assignment in November 2014 with the understanding that it would take approximately three months, but the work took longer than anticipated. During these periods, James drove approximately 87 miles from Yakima to Quincy, worked his day's shift, and then drove home. From October until December 2015, James worked for Abacus Project Management, Inc. (Abacus) at the Carty Generating Station in Boardman, Oregon, 147 miles from Yakima. While working at Abacus James typically would drive from Yakima to Boardman on Sunday afternoons and return the following Wednesday or Thursday. During his two months in Boardman, James stayed at the Rodeway Inn in Boardman and drove from there to his worksite and back while working for Abacus.

From January through May 2016, James again worked at the Carty Generating Station in Boardman. By this time Abacus had been replaced by another company, Day & Zimmerman. Because the project had fallen behind, James was often required to work six or seven days a week, putting in 13-hour days. As before, James stayed at the Rodeway Inn. He made 10 round trips from Boardman to his home in Yakima during this time. In addition, he attended continuing education classes hosted by his Local in Tri-Cities, Washington, 54 miles from Boardman, making that drive twice a week for 15 weeks. In May 2016, James began another assignment at Temp. Control, ultimately working there until April 2017, a duration of approximately ten months. James's work started with a change order relating to a Microsoft Corp. building in Quincy. James was told that this project would last approximately four or five months and that he could work four days a week, ten hours a day. However, Microsoft added more work, lengthening the project timeline and requiring James to spend more than four days a week in Quincy. Estimating that his work for Microsoft might last another six months, James decided to bring a travel trailer to Quincy so that he could stay overnight and drive to and from his work location. He ultimately settled on Crescent Bar RV Park (Crescent Bar), which required upfront payments of $488 for 2016 and $2,700, both of which James paid in September 2016. James brought his trailer to Crescent Bar and began staying overnight at the start of October. He stayed at Crescent Bar during the work week and made round trips to Yakima on weekends.

From September through November 2017, James also worked for a company called Charter Mechanical at an Intel Corp. facility in Hillsboro, Oregon, approximately 203 miles from Yakima. James typically drove to his sister's house in Hillsboro on Sunday evenings and stayed until Wednesday or Thursday. He paid his sister $100 per week for 10 weeks of room and board, staying with her a total of 29 nights.

The Harwoods claimed unreimbursed employee business expense deductions of $23,309 for 2015, $37,076 for 2016, and $27,442 for 2017. Their deductions for 2016 included meals and entertainment expenses, vehicle expenses, and other business expenses. For 2016 and 2017, the Harwoods also claimed deductions for lodging expenses. The IRS disallowed a portion of the Harwoods' claimed deductions on the basis that they failed to offer adequate substantiation or show that the expenses were ordinary and necessary to Harwood's business. The Harwoods took their case to the Tax Court.

Before 2018 and after 2025, Code Sec. 162(a)(2) allows taxpayers to deduct reasonable and necessary travel expenses such as meals and lodging incurred while away from home in the pursuit of a trade or business. In Strohmaier v. Comm'r, 113 T.C. 106 (1999), the Tax Court held that in order to be considered "away from home," a taxpayer must show that he or she was away from home overnight when the expenses were incurred. For purposes of Code Sec. 162(a)(2), the word "home" generally means the vicinity of a taxpayer's principal place of business, rather than his or her personal residence. However, a taxpayer's residence may be treated as his or her tax home if the taxpayer's principal place of business is temporary rather than indefinite. Employment is "temporary" if it is expected to last for only a short period and "indefinite" if its termination cannot be foreseen within a fixed or reasonably short period of time. In Rev. Rul. 73-529, the IRS set forth three factors for determining whether a taxpayer has a tax home; these factors are whether the taxpayer (1) incurs duplicate living expenses while traveling and maintaining the home; (2) has personal and historical connections to the home; and (3) has a business justification for maintaining the home.

Analysis

The Tax Court held that James had a tax home in Yakima during the years at issue and therefore, he was "away from home" for purposes of Code Sec. 162(a)(2) when he stayed overnight on his various work trips. First, the court determined that James's employment was temporary rather than indefinite because each of the jobs at issue were expected to last a limited period of time, and none lasted more than a year. In the court's view, given the relatively short and uncertain duration of James's jobs, it would not be reasonable to expect the Harwoods to move to be nearer to his places of work.

Next, the court applied the factors set forth in Rev. Rul. 73-529. The court determined that the Harwoods had a home in Yakima for which they incurred expenses and that Connie raised the family in Yakima while James was on the road, a point underscored by the Harwoods' mortgage interest deductions for the years at issue. The court also found that James' expenses while traveling were duplicative of the family's expenditures. The court also took note of the Harwoods' significant personal and historical ties to Yakima, given that their lives and family were rooted there. The third factor - whether James had a business justification for maintaining his home in Yakima - was the principal area of dispute; the IRS asserted that the Harwoods had no business justification for living in Yakima and that they did so merely for personal reasons. But the court disagreed and found that James' union membership was a sufficient business reason for living in Yakima. The court noted that the union had a geographically disparate territory and that almost all of James' work during 2015-2017 was within the Local's footprint.

Therefore, after determining that the Harwoods met the strict substantiation requirements in Code Sec. 274(d), the court held that the Harwoods were entitled to deduct most of their travel expenses. James's meal expenses were deductible according to the federal per diem rate. The court also allowed the Harwoods' deductions for lodging expenses, including James's hotel stays, the trailer park fees at Crescent Bar, and the room and board payments to James's sister. With respect to the upfront rental payments in 2016 at Crescent Bar for 2016 and 2017, the court found that under Zaninovich v. Comm'r, 616 F.2d 429 (9th Cir. 1980), the Harwoods could deduct the full amount of the payments in 2016 rather than allocating them between 2016 and 2017.

The court also allowed the Harwoods to deduct a portion of the claimed vehicle expenses for the years at issue, but subtracted certain commuting mileage that was included in James' mileage log. Further, the court said James could deduct vehicle expenses for his trips between Tri-Cities and Boardman to attend continuing education classes. The court noted that the classes were hosted by the Local and were focused on improving skills required by James's line of employment.

For a discussion of deducting travel expenses, see Parker Tax ¶ 91,105.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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