Deductible travel or commuting?

[tacks]

Paralegal was 1099ed by a law firm. He'll show no Home Office Expense.

Could his trips to and from the law firm be considered business miles?

ParaLegal did most work at the firm's office. ParaLegal was 1099ed for 14,000 by firm. ParaLegal did approximately 510 hours.

Approximately 40 of the 510 hours of work performed at ParaLegal's home.

ParaLegal also did work for other 'clients/customers' while working almost exclusively from home. But this work outside the firm might not appear to be 'gainful employment' when compared to work for the firm. There was less work outside the firm and it was less profitable.

He made approximately 2,000 while trying to do higher level work for himself (as opposed to 14,000 while working for the firm using their office).

ParaLegal did not and will not take a home office deduction. (although he did, 'allegedly,' have a corner of an office which he used exclusively for legal work)

Would it then be feasable to claim that the ParaLegal's principal place of work was his home? And the law firm was a 'temporary work site' as described by Revenue Ruling 99-7? And therefore deductible?

I am concerned that an auditor would deem it as commuting because 1) client did not have another 'regular' job or 'main' job at another location.

I'm hesitant to deduct so much business mileage with no Home Office deduction. I guess i could deduct it if i was prepared to defend against 'non deductible' commuting miles.

But i came accross this bit which makes me want to deduct the miles:

Before 1998, the term “principal place of business” was defined as the “the most important or significant place for the business” in Sec. 280A. Consequently, in the cases cited above (Strohmaier and Steinhort), the most important place of business was deemed by the courts to be where the actual work was being performed (i.e., on the boat or in a client’s home).

The broader definition now encompasses when
1. The office is used by the taxpayer for administrative or management activities of the taxpayer’s trade or business, and
2. There is no other fixed location of the trade or business where the taxpayer conducts substantial administrative or manage-ment activities of the trade or business.

While the definition now includes a home office where administrative tasks can be performed, one should remember that the “office” portion of the residence must be used exclusively for that purpose in order to qualify for a tax deduction. Simply doing the administrative work in a spare bedroom or on a dining room table will not qualify the residence as the principal place of business under Sec. 280A(c)(1)(A).

http://www.aicpa.org/pubs/taxadv/oct2008/wade.pdf

[erchess]

Reactons

1. You didn't say specifically that your client performed in his home office certain administrative functions related to his work with the law firm for which he had no alternative place in which he could have done them and without which he could not have earned the income. If that's right then I would say he has no home office with respect to his work with the law firm.

2. He still might have a home office with respect to his self employment but you didn't ask us about that or give us enough information to answer.

3. I don't understand how you can say he was not gainfully self employed when you state that he had income from self employment. I assume that you mean he had expenses equal to or exceeding revenue but I believe that he is still considered to be gainfully self employed even though his Sch C shows a loss.

[tacks]

Erchess,


Thanks for responding fully to my question. I edited my original post so that others like yourself might find it less ambiguous.

1. You didn't say specifically that your client performed in his home office certain administrative functions related to his work with the law firm for which he had no alternative place in which he could have done them and without which he could not have earned the income. If that's right then I would say he has no home office with respect to his work with the law firm.

I understand that the work at the law firm was essentially the same type of work as that he did outside the lawfirm. So I understand that the client did indeed do certain administrative functions related for work at home -- 'work' meaning any and all jobs -- the firm and all others.. I might have to question him further on this. He couldn't perform administrative duties at the law firm if they were related to his other clients/customers.

2. He still might have a home office with respect to his self employment but you didn't ask us about that or give us enough information to answer.

Sorry. I understand that he did, conservatively, 90% of the 'self employment' work -- flying solo -- at his home. I, more or less, assume for purposes of 99-7 he did have a home office w/ respect to his self employment.

EDIT: I'm not very concerned about a 'home office w/ respect to his...' SE/independent work as the travel related to it is all local -- immaterial. While he does have a Home Off w/ respect to his independent work this doesn't necessarily effect whether he can deduct the mega miles driven to the law firm.

3. I don't understand how you can say he was not gainfully self employed when you state that he had income from self employment. I assume that you mean he had expenses equal to or exceeding revenue but I believe that he is still considered to be gainfully self employed even though his Sch C shows a loss.

By saying 'not gainfully self employed' I mean he made only 1/7th of the revenue he made elsewhere. And he did have more expenses from 'self employment' -- employment outside the firm, completely on his own. My concern is that an auditor would not deem his work outside the firms as another 'main' and/or 'regular' job and therefore the commute to the firm is not deductible.

[tacks]

At this point i'm thinking that IF we decide to deduct miles driven to the law firm we should be very conservative -- go very light. If audited these miles would get looked at. This large amount of miles driven w/ no home office expense might, by itself, draw an IRS audit -- whether the deduction is deemed technically correct or not.

If we deem the miles deductible -- legitimate business miles -- we might still consider forfeiting a significant portion of those miles to avoid an audit.

[JohnH]

On the other hand, forfeiting a large amount of the mileage out of fear of an audit might set you up to lose it all if an audit occurred anyhow. An auditor might take the position that because you were unsure about the deductibility of the mileage, that prompted you to try and "get by" with a small amount in an effort to stay under the radar, thus proving that you knew the mileage wasn't deductible to begin with. Pretty much an indefensible position.

I'd suggest that you determine whether or not there's a legitimate basis for the home office and if so, claim all the mileage the client is entitled to claim. Otherwise forget the mileage. Based on what I've read so far, I have doubts about the legitimacy of the home office but maybe I'm missing something. I'd like to be wrong on this because I can see that it means a great deal to your client.

[tacks]

On the other hand, forfeiting a large amount of the mileage out of fear of an audit might set you up to lose it all if an audit occurred anyhow. An auditor might take the position that because you were unsure about the deductibility of the mileage, that prompted you to try and "get by" with a small amount in an effort to stay under the radar, thus proving that you knew the mileage wasn't deductible to begin with. Pretty much an indefensible position.

Thanks John. That's something to keep in mind.

I'd suggest that you determine whether or not there's a legitimate basis for the home office and if so, claim all the mileage the client is entitled to claim. Otherwise forget the mileage. Based on what I've read so far, I have doubts about the legitimacy of the home office but maybe I'm missing something.

Based on what i read it seems as though one might 'take the position' that the client did have a prinicpal place of business at the home for puposes of 99-7. But it's a position that would likely be challenged.

I'm sending a PM to you.

I'd like to be wrong on this because I can see that it means a great deal to your client.

Thanks. Yes, and it also means a good bit to me, you are perceptive. This particular client is close to me. And i expected that people here would wonder why i'm spending so much time on this issue.

[tacks]

Based on what I've read so far, I have doubts about the legitimacy of the home office but maybe I'm missing something.

I might add that has a good bit of the firm's work on his hard drive at home. And that he can show, to some degree, emails written from his residency and to the firm.

Not sure if that would make too much of a difference.

thanks again for reading

[AuditorTurnedGood]

I've been looking into this myself. Form the sounds of things, his home office is not his principal place of business, the firm is. He might do administrative work there for his SE income, and make 90% of the SE income in the home office, but it would seem that he spends the majority of his time and makes the majority of his overall income at the firm.

Is the 1099 from the law firm a correct classification of the relationship, I wonder?

[snowbird]

Assuming the contractor is the correct classification, there may be legitimate reasons that the work has to be done on the law firms premises, such as documents not allowed to go out of a secured room, etc. Not much different than a self employed plumber that has to go to a job site. As far as not taking an home office deduction, the exlusive use test makes this a pain when it is only a work area in a multi-purpose room.

[tacks]

Is the 1099 from the law firm a correct classification of the relationship, I wonder?

thanks for reading

I believe that it is. This individual does do this type of work for mulitple clients/customers. In other year's he is and has been in the business of providing this service. I understand that law firm did not have so much of an 'employer/employee' relationship with the paralegal. I understand that my client could make his own hours. Furthermore i believe that in this case the 'para legal' would be considered a 'professional' for the purposes of employee/contractor (meaning that 'professionals' tend not to be controlled by employers/clients as would an 'employee' would normally be subject to such 'control' from the employer (that is how it was explained to me years ago.))

[tacks]

Thanks for reading, snowbird.

Assuming the contractor is the correct classification, there may be legitimate reasons that the work has to be done on the law firms premises, such as documents not allowed to go out of a secured room, etc.

I understand what you're saying and that's often the case. But it's not the case here. It might have been that the law firm should have been more restrictive with documents, but clearly they were not.

Not much different than a self employed plumber that has to go to a job site.

Actually it is different. A plumber generally does not work the majority of his hours at one single location. One usually wouldn't call one of a plumber's jobs site's a 'principal place of business.'

As far as not taking an home office deduction, the exlusive use test makes this a pain when it is only a work area in a multi-purpose room.

I should clarify.

ParaLegal did not and will not take a home office deduction. (although he did, 'allegedly,' have a corner of an office which he used exclusively for legal work)

I was not being entirely clear here. "Allegedly" was not the best choice of words.

The ParaLegal did have an office. And if he wanted to take a HomeOffice Deduction I would feel comfortable with taking 50% or more of this office room as business use. Meaning that you could draw a line accross the room and the larger side was all work related -- computer, printer, professional pubs & desk.

Again, the issue is whether we can deem these commuting miles as deductible without taking a home office deduction.

[Kram BergGold]

What it comes down to

To get the mileage you have to claim home office.
If you or the client do not feel right about claiming the home office then say goodbye to the miles. If you claim the miles, then claim all of them. Either they are all deductible or none are, so claiming a portion of them makes no sense.

[Bees Knees]

To get the mileage you have to claim home office.
If you or the client do not feel right about claiming the home office then say goodbye to the miles.

I disagree. TTB page 10-5 says:

Office in the home. If an office in the home qualifies as a principal
place of business, daily transportation costs between home and another
work location in the same trade or business are deductible.

That is almost word for word right out of IRS Pub 463, page 15. The Pub says nothing about claiming the office in home deduction. A home office can be a principal place of business, but not qualify for the deduction because it fails the exclusive use test. You still get mileage, even though you cannot deduct the office in home.

[erchess]

Further Reflections

1. It does sound as though contractor is the correct designation for this client.

2. As has been pointed out, to take the mileage he has to claim home office.

3. To claim home office, given that he does not spend the majority of his working time in it, I believe that he would need to argue that he dose some vital function without which he could not have the business there and only there because he is not provided a suitable place anywhere else. For example a plumber might do billing and or marketing out of a home office. The way I am reading your post the paralegal did some of everything in both the home office and the law firm. If that's right I don't see a home office or mileage for him. I wish I could reach another conclusion.

4. Why not lump his two self employment activities together? Going forward he could arrange to do all his billing in the home office and thereby clearly qualify? Or am I missing something about the law?

[Bees Knees]

Rev. Rul. 99-7 says:

If an office in the taxpayer's residence satisfies the principal place of business 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)).

Note again it does not say if the taxpayer's residence satisfies the office in home rules under Section 280A(c). It specifically mentions the rule under Section 280A(c)(1)(A), that of being the taxpayer's principal place of business. There are many other rules in Section 280A(c) that apply to the deductibility of an office in home that are not found at Section 280A(c)(1)(A).