Out-of-town assignments lasting more than one year are costly.

• Author: Sabo, Monica M.

The Energy Policy Act of 1992 (PL 102-486) amended Sec. 162(a) to provide that any out-of-town employment assignment lasting more than one year is an indefinite assignment. When an out-of-town assignment is indefinite, travel expenses (including meals and lodging) incurred by an employee are not deductible and any reimbursements by an employer are includible in the employee's income as wages subject to employment tax. This new law is effective for travel expenses paid or incurred after Dec. 31, 1992, even if an assignment began on or before that date.

In Notice 93-29, the Service took a literal view of this new law and concluded that if an out-of-town assignment lasted one year and one day, it was indefinite retroactively to the assignment's first day. This is the case even if the assignment had been expected to last not more than a year and was subsequently extended because of unforeseen business reasons.

In general, expenses incurred for travel, meals and lodging while away from home in the pursuit of business are deductible. Section 1938 of the Energy Policy Act added the following sentence to Sec. 162(a):

For purposes of paragraph (2), the taxpayer shall not be treated as being temporarily away from home during any period of employment if such period exceeds 1 year. (Emphasis added.)

This new rule applies to costs paid or incurred after Dec. 31, 1992. Thus, it applies to individuals currently working away from home for more than one year after 1992.

Prior law

Under Rev. Rul. 83-82, employment away from home for one year or less was considered to be temporary; travel expenses were deductible and reimbursements to employees were noncompensatory. Travel away from home for more than two years was considered to be a permanent move so travel expenses were not deductible and reimbursements were compensatory and subject to withholding. Travel for more than one year, but not more than two, raised a presumption that it was permanent; this presumption, however, could be rebutted.

The deductibility of expenses from the start of an away-from-home assignment depended on the taxpayer's expectation of its duration at that time. Thus, an initial assignment for 11 months would be temporary (expenses would be deductible or reimbursements noncompensatory); however, if the assignment was extended for more than an additional month, expenses would become nondeductible, or reimbursements compensatory, from and after the time the taxpayer's...