The Deductibility of Away-From-Home Expenses for Senior Missionaries and Other People Rendering Charitable Services
Timothy B. Lewis, J.
At one of the recent Utah State University tax schools for professionals, Professor Jeff Barnes (one of the presenters) was asked about the charitable deductibility of away-from-home expenses, which are typically incurred by senior missionaries while serving missions for the Church of Jesus Christ of Latter-day Saints and who serve for less than two years. Those questions prompted further research by both him and me. Since the headquarters of the LDS Church is in Utah and many Utah attorneys have clients who fit this description, the results of our research should have broad interest.
Moreover, our research should have broader application to charitable work performed on behalf of other churches and even non-religious charitable organizations qualifying as section 501(c)(3) organizations.
Temporary away-from-home expenses can be deducted in at least two contexts, namely, as (1) trade or business deductions under Internal Revenue Code (I.R.C.) Section 162 or (2) charitable contributions deductions under I.R.C. § 170.
I.R.C. § 170(j) specifically allows deductibility for travel expenses (including food and lodging) while away from home performing charitable work as long as there is “no significant element of personal pleasure, recreation, or vacation” involved.
Apparently desiring to avoid duplicative efforts, in Treasury Regulation § 1.170A-1(g), the Treasury Department effectively “piggy-backed” the rules for such things in the charitable deductions context onto the rules associated with away-from-home expenses in the trade or business context under section 162. So the detailed IRS rules and positions concerning temporary away-from-home expenses in the section 162 trade or business context is extrapolated by the IRS to the charitable contributions context even though the specific verbiage and examples used in the trade or business context do not easily transfer over to the charitable context.
According to the IRS, away-from-home expenses can be deductible if the taxpayer is only “temporarily” (as opposed to “indefinitely” or “indeterminately”) away from home. This distinction arose from some early Tax Court cases, Schurer v. Commissioner, 3 T.C. 544 (1944); Leach v. Commissioner, 12 T.C. 20 (1949), and was applied in the United States Supreme Court case of Peurifoy v. Commissioner, 358 U.S. 59 (1959).
Before Congress passed the Energy Policy Act of 1992, Pub. L. No.102-486, § 1938; 106 Stat. 3033, the IRS set forth three potential time periods to be considered in determining the “temporary” nature of away-from-home expenses in the trade or business context, namely, 1. Absences from home of fewer than twelve months;
2. Absences from home of at least one year but fewer than two years; and
3. Absences from home of two years or more. Rev. Rul. 83-83 (1983).
Effectively, if a taxpayer could objectively prove that (1) he had an established home, and (2) he intended to return to it after his service away from that home, then if his period of absence was expected to be fewer than twelve months in duration, his absence would be considered “temporary” in nature thus allowing deductibility for reasonably incurred and adequately substantiated costs.
But even if he could prove his established home and his intent to return to it, if he expected his absence to be at least one year but fewer than two years in duration, then the rebuttable presumption by the IRS would be that his absence was “indefinite” in nature, thus denying deductibility for his away-from-home expenses.
Finally, if his absence from home was expected to last for two years or more, then it would be conclusively presumed by the IRS to be “indefinite” in nature, thus denying deductibility.
Revenue Rul. 83-82 (1983) discussed how the negative rebuttable presumption regarding the middle time period could be effectively rebutted and the taxpayer’s absence considered to be “temporary” rather than only “indefinite” by the IRS, thus allowing him to deduct his away-from-home expenses incurred over that long a period of absence.
Of course, all of the foregoing are insights as to how the IRS would be inclined to look at the matter and do not necessarily reflect how the courts would ultimately decide the issue. If that were not the case, then the IRS would always win in court on every tax position it ever took, but we all know that sometimes the IRS wins in court and sometimes it loses. However, it is fair to say the IRS usually wins in court.
We can look at Revenue Rulings as “safe harbors” given to the taxpayers by the IRS. If a taxpayer can meet the requirements set forth in the applicable Revenue Ruling, she can expect to avoid a court battle with the IRS over the desired tax consequences of a particular transaction. But that does not mean that a situation that does not perfectly line up with the conditions set forth in a Revenue Ruling is ultimately doomed to fail in court.
The bulk of my analysis here will proceed on the assumption that the common situations surrounding senior missionaries of the LDS Church fit within the rules the IRS has set forth over the years regarding away-from-home expenses. But at the end, I will argue that even if the IRS were to disagree, those common situations seem to clearly fit within both the spirit and the letter of I.R.C. § 170(j) regarding charitable deductibility.
In an attempt by Congress to generate more tax revenue to pay for the Energy Policy Act of 1992, it...