temporary living expenses

[Unregistered]

Taxpayer is in the entertainment business. He lives in one area but receives job assignments which take him away from his living area. He does not necessarily work where he lives. He actually lives with his parents. He goes to a job then comes back home and awaits another assignment which is away from his home. He has been told by the other entertainers(musicians) that he can deduct all of his living expenses on these job assignments. The assignments last one to two months then he may be sent to another one before returning home. He is paid with a W-2 and would be able to itemize if so. After returning home he files for unemployment. Everything I read in TTB point to NO but I guess I just want to be sure. Thanks

[Gretel]

This is a grey area, but your case is actually pretty clear.

He has no tax home. No duplicate living expenses since no expenses incurred where he lives. Just paying some rent, if at all, doesn't count.

[Bees Knees]

Not so fast.....

Well, it might not be so clear that he is a transient worker. Let’s look at the facts:

TTB, page 8-11 lists three factors:

1) Business is conducted in the area of a main home and the taxpayer uses that home for lodging while doing business in the area.

2) The taxpayer has living expenses at a main home that are duplicated when business requires the taxpayer to be away from that home.

3) The taxpayer has not abandoned the area in which both his or her historical place of lodging and claimed main home are located, the taxpayer has family members living at the main home, or the taxpayer often uses that home for lodging.

TTB then says if all three of the above are met, the tax home is the home where the taxpayer regularly lives. If two factors are satisfied, the tax home may be where the taxpayer regularly lives. If only one is satisfied, the taxpayer is a transient worker.

The easiest one above to satisfy is number 3. He lives with his parents. No question here, because he lives with family members, has a long historical tie to this place, and there is no question he continues to return there on a regular basis.

Number two above depends. Usually when adult working kids still live with mommy and daddy, there is some kind of arrangement where they chip in rent, or something so that mommy and daddy don’t think they raised a complete failure. People need to justify why this kid won’t leave, so they say, alright, you can stay, if you pay rent.

The rules don’t say that he has to pay fair market value rent. It just says that when he goes on a road trip, he will incur duplicate living expenses. So I would say, if he pays any type of rent for living at home, and that rent does not stop during the time he is away on a gig, then he satisfies number 2 above.

IF number 2 and number 3 above are satisfied, the rules say he may have a tax home with mommy and daddy. Now in the tax biz, we usually take the word may and say that means we can do it. May means yes. We will argue it with an auditor if it ever comes up, which in 99% of the cases, the client will never get audited.

Even number 1 above is questionable, and could be stretched. You said He does not necessarily work where he lives. Well, “does not necessarily” is the same as “may.” That means, he does, because you left the possibility open that on occasion, he does have a job near home.

In the music biz, it is generally a mixture of gigs close to home and road trips. It all depends. I’m sure if you ask, he will say, yes, occasionally we have a job close to home, but most of the time, we are on the road. Well, that means number one is satisfied also, especially if he passes number 2 and number 3. It doesn’t say that the work around home has to be the main work. It just says that he has to conduct business around home, in addition to the work on the road.

My vote is that he can call his parent’s place his tax home, and deduct all living expenses while he is on the road.

[jainen]

I've been told

>>He has been told by the other entertainers(musicians) that he can deduct all of his living expenses on these job assignments<<

Sure... and I've been told by other tax preparers that I can sing!

Well, iIf he is living with his parents odds are he doesn't have much income to report anyway. The IRS isn't going to care.

I like musicians generally and would try to stretch this in the client's favor. If he has substantial business activity near his home, including rehearsal, administration, research, equipment maintenance, etc., he could probably claim it as his tax home. (I don't mean O.I.H., just tax home). The deductions would be appropriate if he keeps good business-like records.

[Unregistered]

There is a Tax Court case that appears pretty much on point. I suggest you read it. The Court found that the taxpayer who lived with his parents could NOT use his parents house as his tax home & therefore could not claim any deductions for "away from home" living expenses. Obviously facts & circumstances can be different but it seems the situations may well be similar.

Henderson TC Memo 1995-559 - you can find it on the TC website www.ustaxcourt.gov

New York Enrolled Agent

[jainen]

The primary argument

>>taxpayer who lived with his parents could NOT use his parents house as his tax home<<

The primary argument for the court in that case was not that he lived with his parents and didn't have a permanent home of his own. It was that none of his employment had any connection to that location.

That's why I began my position with, "If he has substantial business activity near his home..." The most important thing to determine is just that.

[Bees Knees]

Agreed.

The court in Henderson said, “When not on tour petitioner stayed at his parents' house in Boise, Idaho, where he kept his car, dog, and other belongings. He was registered to vote, was licensed to drive, and paid State income tax in Idaho. Petitioner had no ownership interest in his parents' house and paid no rent. He did perform some work around the house when he was not traveling, including painting, electrical repairs, installing light fixtures with motion sensors, landscaping, and constructing a dog house. Petitioner's sole financial contribution to the household consisted of approximately $500 paid to obtain the supplies needed to perform these activities.”

The court called that token money, thus, he did not have duplicative expenses while on the road, as he obviously did not incur any of that $500 he paid on his parent’s home while he was away on business.

So he fails the 2nd test.

There was also no mention of any of his tours stopping in Boise, Idaho, so he also failed the 1st test.

2 tests are not met, so he has no tax home.

No comparison to the situation we are talking about.

[Unregistered]

traveling expenses

thanks so much for all the replies regarding travel expenses. I will not give in to his big brown eyes and sad expression. I also appreciate the tax court case as an example. He paid me at least. I am sure he will go elsewhere. It is just that we do his parents and they are also friends.

[Gretel]

Wait a minute. Are you saying now he is not paying any rent to his parents or at least not FMV rent?

I am frustrated now and really wished you gave a little more info about the situation after getting all that feedback.