Rev. Rul. 83-82

ISSUE

May the taxpayer in the five situations discussed below deduct traveling expenses under section 162(a)(2) of the Internal Revenue Code?

FACTS

Situation 1.--Taxpayer A is a United States citizen residing in city CI-1 in the United States. A is a construction worker regularly employed in CI-1. A is a member of the local trade union in CI-1, and this union helps A obtain work in or near CI-1. Because of a shortage of work in or near CI-1, A accepted work on a construction project in another city, CI-2, which is 250 miles from CI-1. The type of work A performed on this project was scheduled to be completed in 16 months and A planned to return to CI-1 at that time. A's spouse and children continued to reside in the house that A owns in CI-1 during the term of A's employment in CI-2. While in CI-2, A lived in a trailer that A owns. A returned to CI-1 most weekends to be with the family and to check with the local union for employment opportunities in or near CI-1.

Situation 2.--The facts are the same as in Situation 1 except that taxpayer B sold the family dwelling in CI-1 and purchased a house in CI-2 where B and B's family resided while B was working in CI-2. B did not continue to seek employment in CI-1 during the term of the employment in CI-2.

Situation 3.--The facts are the same as in Situation 1 except that taxpayer C expected the employment in CI-2 to last for longer than 2 years.

Situation 4.--Taxpayer D is a citizen of FC, a foreign country, and is employed by an international firm in that country. D was selected to participate in a training program conducted in the United States by an affiliate of the international firm. The training program was for an 18-month period. During the training period D's compensation was paid by the U.S. affiliate.

D's employer has sent several employees on this training program in the past and each time the employee has returned to work for the same employer. D expected to return to work for the foreign firm from which D was on an authorized leave of absence for the 18-month training period in the United States.

D's spouse and children remained in FC during the training period. Before, during, and after the training period, D owned a dwelling in FC, where D's family resided while D was in the United States. D rented an apartment in the United States for the 18-month training period.

Situation 5.--The facts are the same as in Situation 4, except that taxpayer E sold the family dwelling in FC, put the family furniture in storage in that country, and moved E's family to the United States for the 18-month training period.

LAW AND ANALYSIS

Section 162(a)(2) of the Code allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business including travel expenses (including amounts expended for meals and lodging other than amounts that are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business.

However, under section 262 of the Code no deduction is allowed for personal, living, or family expenses, unless expressly provided by law.

Sections 864(b), 871(b) and 873 of the Code together provide, in effect, that nonresident aliens are taxable on taxable income resulting from the performance of personal services within the United States, and deductions are allowed to the extent that they are connected with income which is effectively connected with the conduct of a trade or business (including the performance of services) within the United States. Section 874(a) states that a nonresident alien individual receives the benefit of deductions only by filing a true and accurate return.

For traveling expenses to be deductible under section 162 of the Code, they must satisfy the following three conditions: (1) they must be ordinary and necessary, (2) they must be incurred while away from home, and (3) they must be incurred in pursuit of a trade or business. See Commissioner v. Flowers, 326 U.S. 465 (1946), 1946-1 C.B. 57; and Rev. Rul. 60-189, 1960-1 C.B. 60.

Generally, a taxpayer's "home" for purposes of section 162(a)(2) of the Code is considered to be located at (1) the taxpayer's regular or principal (if more than one regular) place of business, or (2) if the taxpayer has no regular or principal place of business, then at the taxpayer's regular place of abode in a real and substantial sense. See Rev. Rul. 73-529, 1973-2 C.B. 37, and Rev. Rul. 60-189.

A taxpayer may be away from home when on a temporary, as opposed to an indefinite or permanent, work assignment away from the taxpayer's regular or principal place of employment. Peurifoy v. Commissioner, 358 U.S. 59 (1958), 1958-2 C.B. 916. Employment is temporary for this purpose only if its termination can be foreseen within a reasonably short period of time. See Albert v. Commissioner, 13 T.C. 129 (1949); and Rev. Rul. 75-432, 1975-2 C.B. 60. Where a taxpayer anticipates employment to last for less than one year, whether such employment is temporary will be determined on the basis of the facts and circumstances.

If a taxpayer anticipates employment to last for 1 year or more and that employment does, in fact, last for 1 year or more, there is a presumption that the employment is not temporary but rather is indefinite, and that the taxpayer is not away from home during the indefinite period of employment. See Rev. Rul. 60-189, page 63. However, under certain circumstances this 1-year presumption of indefiniteness may be rebutted where the employment is expected to, and does, last for 1 year or more, but less than 2 years. An expected or actual stay of 2 years or longer will be considered an indefinite stay, and not a stay away from home, regardless of any other facts or circumstances.

To rebut the 1-year presumption of indefiniteness with respect to employment that lasts for 1 year or more but less than 2 years, the taxpayer must clearly demonstrate by objective factors that the taxpayer realistically expected that the employment in issue would last less than 2 years and that the taxpayer would return to the claimed tax home after the job terminates. In addition, the taxpayer must show that the claimed tax home is the taxpayer's regular place of abode in a real and substantial sense. There are three objective factors that may be used to determine, with respect to the taxable year in question, the bona fide nature of the taxpayer's assertion that the claimed abode is the taxpayer's regular place of abode in a real and substantial sense. They are:

(1) Whether the taxpayer has used the claimed abode (for purposes of the taxpayer's lodging) while performing work in the vicinity thereof immediately prior to the current job and the taxpayer continue to maintain bona fide work contacts (job seeking, leave of absence, on-going business, etc.) in that area during the alleged temporary employment;

(2) Whether the taxpayer's living expenses at the claimed abode are duplicated because work requires the taxpayer to be away from the abode; and

(3) Whether the taxpayer (a) has a family member or members (marital or lineal only) currently residing at the claimed abode, or (b) continues to currently use the claimed abode frequently for purposes of the taxpayer's lodging.

These factors are similar to the three factors set forth in Rev. Rul. 73-529 to determine, for travel away from home purposes, the bona fide nature of a taxpayer's claimed abode where the taxpayer has no regular or principal place of business. These factors are also similar to those considered by the courts in determining whether employment of one year or more is temporary or indefinite. Compare, for example, Blankenship v. Commissioner, T.C.M. 1979-366 (17-month employment was temporary), Rolbin v. Commissioner, T.C.M. 1970-186 (20-month employment was temporary), and Cowger v. Commissioner, T.C.M. 1966-95 (16 month employment was temporary), with Monroe v. Commissioner, T.C.M. 1979-100 (13-month employment was indefinite), Elsaesser v. Commissioner, T.C.M. 1978-2 (18-month employment was indefinite), and Pazden v. Commissioner, T.C.M. 1977-139 (19-month employment was indefinite). See Hummel v. Commissioner, T.C.M. 1977-135 (2-year employment was indefinite because "a 2-year span cannot be considered sufficiently temporary to justify allowing the deductions (travel and living expenses) claimed").

If a taxpayer clearly demonstrates the requisite realistic expectation as to job duration and return to the claimed abode, and the taxpayer satisfies all three of the claimed abode factors set forth above, the Internal Revenue Service will recognize that the taxpayer is temporarily away from home for traveling expense deduction purposes. If a taxpayer demonstrates such requisite realistic expectation but satisfies only two of the three claimed abode factors, then all the facts and circumstances of the case will be subjected to close scrutiny to determine whether the taxpayer is temporarily or indefinitely away from home for traveling expense deduction purposes. If a taxpayer demonstrates such requisite realistic expectation but fails to satisfy at least two of the three claimed abode factors, the Service will regard the taxpayer as indefinitely employed at the new work location and not away from home for traveling expense deduction purposes.

In Situation 1, A realistically expected the employment in CI-2 to last for 16 months and to return to CI-1 at the end of that period. In addition A satisfied all three claimed abode factors by continuing to seek a job in CI-1, duplicating living expenses, and having familial contacts with the claimed abode. These factors indicate that A maintained a home in a real and substantial sense in CI-1 during the 16-month period of work in CI-2.

In Situation 2, B realistically expected the employment in CI-2 to last for 16 months. However, no objective factors support B's claim that B will return to CI-1 after the job in CI-2 terminates. Moreover, even if B can establish that B will return to CI-1, B failed to satisfy any of the three claimed abode factors. B did not maintain any work or familial contacts with CI-1 and B did not have duplicate living expenses while living in CI-2. The failure of B to satisfy any of the claimed abode factors indicates that B did not have a home in a real and substantial sense in CI-1 during B's period of work in CI-2.

In Situation 3, C expected the employment to last for longer than two years and based on that fact alone the employment will be considered indefinite. An expected stay of 2 years or longer will not be considered temporary.

In Situation 4, D realistically expected the training period in the U.S. to last 18 months and to return to the foreign place of employment (FC) at the end of the period. In addition, D satisfied all three claimed abode factors by being on an authorized leave of absence, duplicating living expenses, and having familial contacts with the claimed abode. These factors indicate that D maintained a home in a real and substantial sense in FC during the 18-month training period.

In Situation 5, E realistically expected the training period in the U.S. to last 18 months and to return to the foreign place of employment (FC) at the end of such period, and E was on an authorized leave of absence. However, E failed to satisfy either the duplicate living expenses or familial contacts factors with respect to the claimed abode. The storage of furniture does not satisfy the duplicate living expense factor. The failure of E to satisfy two of the three claimed abode factors indicates that E did not have a home in a real and substantial sense in FC during the 18-month training period.

HOLDINGS

Situations 1 and 4. Taxpayers A and D are temporarily away from home for traveling expense deduction purposes, and thus they are allowed to deduct their meals and lodging expenses incurred while away from home pursuant to section 162(a)(2) of the Code.

Situations 2, 3 and 5. Taxpayers B, C, and E are indefinitely employed at the new work location for traveling expense deduction purposes, and thus they are not allowed to deduct their meals and lodging expenses at their indefinite employment pursuant to section 262 of the Code.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 73-578, 1973-2 C.B. 39, holds that a citizen of a foreign country, who comes to the U.S. under a 6-month nonimmigrant visa to work for a U.S. employer with the intention of resuming regular employment in the foreign country after this period, is a nonresident alien whose tax home remains in the foreign country and who may deduct necessary traveling expenses. However, after 4 months when the individual agrees to continue the U.S. employment for an additional 14-month period and performs certain other acts, Rev. Rul. 73-578 holds that the individual becomes, as of that date, a resident alien whose tax home is the location of the U.S. employment and who may not deduct traveling expenses unless away from that tax home overnight. Rev. Rul. 73-578 is not intended to adopt the residency-nonresidency tests under section 871 of the Code for purposes of determining the allowability of traveling expense deductions under section 162(a)(2). Whether U.S. citizens or aliens are involved, the tests the Service will apply to determine temporary or indefinite employment status for section 162(a)(2) traveling expense deduction purposes are more clearly and completely set forth in this revenue ruling and Rev. Rul. 60-189. Rev. Rul. 73-578 is clarified. Rev. Rul. 60-189 is amplified.