Lodging costs & more: recent administrative and judicial developments.

• Author: Josephs, Stuart R.
• Position: FedTax

Proposed Regs. Sec. 1.162-31 was published April 25 regarding lodging expenses paid or incurred when not traveling away from home. Generally, these local lodging expenses are personal expenses that are not deductible under 1RC: Sec. 262(a) However, this proposal states that, under certain circumstances. such expenses may be deductible under Sec. 162(a) as ordinary and necessary expenses paid or incurred in connection with carrying on a taxpayer's trade or business, including a trade or business as an employee.

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Whether local lodging expenses are paid or incurred in carrying on a trade or business is determined under all the (acts and circumstances. One factor is whether the taxpayer incurs the expense because of a bona fide condition or requirement or employment imposed by the employer.

Safe Harbor for Local Lodging at Business Meetings and Conferences

An individual's expenses for local lodging will be treated as ordinary and necessary business expenses if:

* The lodging is necessary kw the individual to participate fully in or be available for a bona fide business meeting. conference, training activity or other business function;

* The lodging is a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter;

* The individual is an employee and the employer requires the employee to remain at the activity or function overnight: and

* The lodging is not lavish or extravagant under the circumstances and does not provide and significant element of personal pleasure. recreation or benefit.

Proposed Effective/Applicability Date

This proposed regulation would apply to expenses paid or incurred On or alter the date that it is published as a final regulation in the Federal Register. However. until this proposal is finalized, taxpayers may apply it to local lodging expenses paid or incurred in tax years for which the statute of limitations on credit or refund under Sec. 6511 has not expired.

Statute of Limitations

Generally, See. 6501(a) provides that any tax imposed by the Internal Revenue Code must be assessed within three years after the return was filed, whether or not that return was filed On or alter the prescribed date. However, under Sec. 6501(e)(I)(A)(i) a six-year statute of limitations applies income taxes 11 the taxpayer omits from gross income an amount properly included in gloss income and that amount exceeds 25 percent of the gross income stated in the return.

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