Is local travel a deductible business expense?

• Author: Moore, Philip E.
• Position: IRS Letter Rulings 200025052 and 200026025

Recently issued Letter Rulings 200025052 and 200026025 provide additional guidance to Rev. Rul. 99-7 on whether daily transportation expenses are deductible, or, for an employee, whether the reimbursement for such expenses is excludible as a nontaxable fringe benefit.

In general, daily transportation expenses incurred between a taxpayer's residence and his place of business or employment are nondeductible personal expenses under Regs. Secs. 1.162-2(e) and 1.262-1(b)(5). Under Rev. Rul. 99-7, however:

1. A taxpayer commuting between his residence and a temporary work location outside the metropolitan area where the taxpayer lives and normally works can deduct daily transportation expenses as business expenses. Unless (2) or (3) below applies, however, commuting expenses between the taxpayer's home and a temporary work location within that metropolitan area are nondeductible expenses, because that area is considered his regular place of business.

2. If a taxpayer has one or more regular work locations away from his residence, he may deduct daily transportation expenses incurred on trips between his residence and a temporary work location in the same trade or business, regardless of the distance. As long as a taxpayer has one or more regular places of business, the metropolitan area issue will not be considered. Daily commuting expenses for point-to-point travel, between home and temporary work locations inside or outside the metropolitan area, are deductible in the same way as in (1).

3. A taxpayer may deduct daily transportation expenses incurred in commuting between his home office and another work location in the same trade or business, regardless of whether the work location is regular or temporary and regardless of the distance. The home office must be the taxpayer's principal place of business under Sec. 280A(c)(1)(A).

Rev. Rul. 99-7 modified the term temporary work location, as defined in Rev. Ruls. 90-23 and 94-47. Previously, a temporary work location was where the taxpayer performed services on an irregular or short-term (generally days or weeks) basis. Under Rev. Rul. 99-7, a one-year standard is used to determine whether a work location is temporary rather than regular.

Letter Ruling 200025052

Letter Ruling 200025052 provides the following:

* The scenarios in Rev. Rul. 99-7 dealt only with "daily" transportation expenses incurred in traveling from the taxpayer's residence to a work location and back to the residence within a day...