An independent contractor’s legitmiate travel costs were found by the IRS to be nondeductible commuting costs and not work-related, resulting in his self-prepared returns being very expensive.
The contractor lived in New Jersey and renovated properties in Philadelphia and the surrounding metropolitan area. He typically worked at the job site for several months. When the job was completed, he moved on to another jobsite. The taxpayer claimed deductions for transportation costs between his residence and the jobsites, including truck expenses, tolls, and insurance. The IRS disallowed the deductions, determining that they were nondeductible commuting expenses. The IRS found that the contractor was working within the metropolitan area and that he had no regular place of business.
The taxpayer decided to take his case to Tax Court. Unfortunately for the taxpayer, the Tax Court upheld the IRS’s denial of these expenses. Whereas the IRS does allow a taxpayer to deduct travel costs between the taxpayer’s residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works, such expenses are not deductible if the temporary work location is inside the metropolitan area where the taxpayer lives and normally works. The exception to the disallowance is (1) that the taxpayer has one or more regular work locations away from the taxpayer’s residence; or (2) the taxpayer’s residence is his principal place of business (i.e., taxpayer has a home office).
The taxpayer appealed this decision to the Third Circuit which rejected the taxpayer’s lame argument that a building supply store or bank he patronized should be treated as regular work locations for him. The taxpayer’s argument, the court found, would strain the meaning of regular work location. The taxpayer was at the building supply store and the bank as a customer and not as a worker. Thus, the taxpayer was not successful in showing that he had one or more work locations.
The Third Circuit noted that the taxpayer did not raise the home office exception on appeal, and, therefore, he was deemed to have waived it. This case illustrates that self-preparation of tax returns and self-representation during IRS audits are not always the least expensive alternatives. The taxpayer’s actions converted normally legitimate tax deductions to non-deductible expenses.
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