Daily transportation expenses for temporary work locations.

• Author: O'Connell, Frank J., Jr.

Letter Ruling (CCA) 200018052 demonstrates the proper application of Rev. Rul. 99-7 in determining if employer-reimbursed daily transportation expenses to a temporary work location are includible in an employee's gross income. Generally, daily transportation expenses incurred in going between an employee's residence and a work location are nondeductible commuting expenses. However, Rev. Rul. 99-7 provided an exception to the general rule when the employee had one or more regular work locations in the same trade or business, regardless of the travel distance.

Usually, an employer must include payments made to an employee in his gross wages and pay employment taxes on them. However, if the payments are deductible business expenses and meet accountable plan requirements, the employee does not need to include them in income and they are not subject employment taxes.

Under Rev. Rul. 99-7, daily transportation expenses that an employee incurred traveling between his residence a temporary work location were deductible business expenses. It also redefined a "temporary work location" using a one-year standard illustrated by three rules:

1. If employment at a work location is realistically expected to last for one year or less, the employment is temporary (in the absence of facts and circumstances indicating otherwise).

2. If employment at a work location is realistically expected to exceed one year or there is no realistic expectation that the employment will last for one year or less, it is not temporary, regardless of whether it actually exceeds one year.

3. If employment at a work location is initially realistically expected to last for one year or less, but at some later date it is realistically expected to exceed one year, the employment is temporary until the date that the realistic expectation changes, and is not temporary after that date.

   Letter Ruling 200018052 presents eight scenarios for situations that assume an employee has a regular work location away from his residence, he does not use the residence as a work location and the reimbursement meets the accountable plan's requirements.

   Scenario 1. An employee on assignment performs services at the office of his employer's client. The assignment' is expected to be completed in approximately 36 months. The employee spends approximately 95% of his total available time onsite.

   Conclusion 1. Employment is more than one year; therefore, the client's office is not a temporary work location. The...