Background. Glenn Bogue lived in Cherry Hill, NJ, a township close to the Pennsylvania border, at the home of his fiancé, Janis Pannepacker. (The home is referred to throughout the case as Mr. Bogue′s "residence.") During the years in question, 2005–2006, Mr. Bogue worked with another contractor to renovate residential properties, mostly in Philadelphia and its suburbs. In all, there were five work locations ranging from four miles to twenty miles away from his Cherry Hill residence. He worked at each site for a number of months and, when the renovation was complete, went to the next work site.
On his 2005 and 2006 tax returns, Mr. Bogue claimed deductions for car and truck expenses of $9,232 and $9,657 for each year respectively. He also claimed deductions for tolls and automobile insurance for the two years.
During this time, Mr. Bogue used a room in Ms. Pannepacker′s house as his office, but did not claim an office–in–home deduction. He also kept his tools in a storage shed on the property when he was not using them.
Applicable law. Section 162(a) allows a deduction for all ordinary and necessary expenses paid or incurred in carrying on a trade or business. In general, expenses for traveling between one′s home and one′s place of business are commuting expenses, which are treated as nondeductible personal expenses under §262(a). There are three exceptions to this general rule:
- Travel expenses to a work site are deductible if the taxpayer′s residence is the taxpayer′s principal place of business because a home office is located at the residence. This exception is established largely through case law. However, for the exception to apply, the taxpayer must meet the "regular and exclusive use" home office deduction criteria as provided in §280A(c).
- Rev. Rul. 99–7 allows a taxpayer to deduct daily transportation expenses incurred in going between the taxpayer′s residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works.
- Rev. Rul. 90–23 allows a taxpayer with one or more regular work locations away from his residence to deduct daily transportation expenses going between his residence and a temporary work location in the same trade or business, regardless of the distance.
The home office exception. Although Mr. Bogue did not claim a home office deduction, the court still considered whether his residence was his principal place of business for purposes of the exception. Mr. Bogue established that he used the desktop computer in the office for business purposes to research parts and to keep track of his billing. He also used the landline telephone in the office to contact suppliers. He presented at least some records to show that he paid Ms. Pannepacker for use of the telephone and Internet service. While it was clear that Mr. Bogue used the office for business purposes, neither he nor Ms. Pannepacker presented any credible testimony that the office was used exclusively for that purpose.
Mr. Bogue relied on an older court case (Walker v. Comm′r, 101 T.C. 537 (1993)) in which a deduction was allowed because the taxpayer′s residence was a regular work location. The court rejected his arguments, holding that the conclusion in Walker was superseded by other rulings and case law and that the principal place of business standard applied. The court also rejected Mr. Bogue′s argument that the exclusive use of the storage shed to store his tools allowed him to deduct travel expenses. While deductions may be possible for use of a separate structure in connection with the taxpayer’s business, by itself, this use does not qualify a taxpayer′s residence as his principal place of business. Because the regular and exclusive use tests for the home office under §280A(c) were not met, Mr. Bogue′s residence was not considered his principal place of business and the court concluded that the home office exception did not apply.
Temporary distant worksite exception. This exception, originally established in case law and defined in Rev. Rul. 99-7, has a two-pronged test:
- The taxpayer must travel to a temporary work location, and
- This location must be outside of the metropolitan area where the taxpayer lives and normally works.
Mr. Bogue stated that because most of his worksites were across the state line in Pennsylvania, these sites were located outside of his metropolitan area. He argued that the court should refer to what he believed to be an Office of Management and Budget (OMB) definition of a metropolitan area as an urban area with more than 50,000 people.
Pointing out that his understanding of this definition was not correct, the court explained that the OMB defines a metropolitan statistical area (MSA) as an area of more than 50,000 people "containing a recognized population nucleus and adjacent communities that have a high degree of integration with that nucleus." Ironically, by that definition, Mr. Bogue′s Cherry Hill, NJ residence and all the temporary work sites are located in the Philadelphia–Camden–Wilmington MSA.
The court declined to use MSAs or any type of rigid definition of "metropolitan area" to determine if a taxpayer has or has not travelled outside the area because such definitions could lead to absurd results. One taxpayer could travel over 100 miles and be within his MSA while another could travel five miles and be outside his MSA. Such definitions therefore "frustrate the intent of the primary principal that commuting expenses are nondeductible."
Instead, the court evaluated the facts and circumstances in Mr. Bogue′s case. The court found that it was his normal practice to travel about 15 miles to a worksite and "there was nothing unusual about those trips. "Cherry Hill is about 10 miles east of Philadelphia, PA and even the farthest worksite was within the Philadelphia city limits.
Because four of the five sites travelled to during 2005 and 2006 were in Philadelphia or its suburbs (the fifth site was in Haddonfield, NJ, about five miles from Cherry Hill), the court concluded that those areas were the areas where he normally worked and the temporary distant worksite exception did not apply. Regular work location exception. This exception allows a taxpayer to deduct transportation expenses to a temporary work location if the taxpayer has a regular or main job. Because all Mr. Bogue′s worksites were temporary locations as defined in Rev. Rul. 99–7 and he did not have a regular or main job in his home town or anywhere else, the regular work location exception did not apply.
Conclusion. Mr. Bogue failed to qualify under any of the three exceptions that would allow a deduction for travel expenses between home and work, including car and truck expenses, tolls, and automobile insurance. The Tax Court held that his expenses in traveling from his residence to the temporary worksites were nondeductible commuting expenses.
Application. Taxpayers frequently misinterpret the significance of "temporary work location," believing that as long as a work location or assignment is temporary, transportation and other travel–related expenses are deductible. The Tax Court discussion painstakingly explains that for one of the two temporary location exceptions to apply, the taxpayer must be at a temporary location that is either 1) away from the metropolitan location where he normally lives and works (temporary distant worksite exception) or 2) away from his regular or main job (regular work location exception).
The discussion also explains that facts and circumstances, rather than a particular definition (such as OMB listings of Metropolitan Statistical Areas) must be considered in defining a metropolitan area and determining if the taxpayer′s work is inside or outside the area. More to the point, the decision makes it clear that the temporary work must not only be outside the metropolitan area where the taxpayer normally lives, it must also be outside the metropolitan area where the taxpayer normally works. Thus, even if Philadelphia had been found to be a different metropolitan area from the area of Mr. Bogue′s Cherry Hill residence, the Philadelphia area was where he normally worked.
Mr. Bogue might have been able to use the home office exception if he had been able to supply the court with adequate testimony as to his regular and exclusive use of the office as his principal place of business, but he did not do so. It should be noted that for similar reasons, the court denied other business deductions claimed on Mr. Bogue′s tax returns, finding that he either failed to establish a business connection to the expenses or failed to produce records or other credible substantiation to back up the deductions.
