162(a)(2) allows a deduction for travel expenses away from home in the pursuit of a trade or business. A person's tax home for purposes of 162(a)(2) is their principal place of business (or employment). If it were otherwise, then commuting expenses would be deductible, but they are not.
Generally, a person's principal place of business or employment is obvious. Not so for Mr. and Mrs. Allen - see the table below. The first two columns show where the Allen's worked for the two-year period in question. The third column is where they lived, and the fourth column indicates when they started renting their residence in The Dalles.
Mrs. Allen really never had much of an argument. As the table shows, she always worked where she lived. The Tax Court held that when Mr. Allen started working in Pendleton it became his new "tax home." As a result, Mr. Allen could not deduct travel expenses from The Dalles to Pendleton. If Mr. Allen could establish that his work in Pendleton was temporary he might have had a chance, but on the facts here his work in Pendleton was not temporary.
You would think that this determination meant Mr. Allen could deduct travel from Pendleton back to The Dalles (Mr. Allen taught two nights per week in The Dalles while working full-time in Pendleton). But, the IRS argued Mr. Allen made a personal choice to stay in The Dalles overnight and could have driven back to his tax home in Pendleton after teaching. Pendleton is 125 miles from The Dalles.
Lastly, the Allen's tried to deduct travel expenses between their new rental home in Oregon City and their former residence in The Dalles (the Allen's were renting their former home in The Dalles). Generally, this type of travel expense is deductible. However, the Allen's were renting their The Dalles residence under the not-for-profit rules. see IRS Pub 527. This means that the Allen's could deduct expenses up to rental income, but all losses in excess of income are neither deductible nor carried forward
Unfortunately for Mr. Allen this is a harsh result. The record is not clear, but if Mr. Allen had left from his Pendleton employment and went straight to The Dalles to teach, then his travel expenses going from one job to a second job should have been deductible. see Rev. Rul 99-7. Also under the same Revenue Ruling, Mr. Allen should have met the "going between the taxpayer's residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works" circumstance.
Finally, It is also interesting to note that the Tax Court allows a married couple to have two different tax homes. This is consistent with tax theory that the individual is the taxable unit.
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