Permanent Positions are Never Temporary for Tax Purposes

[traveltax]

We are often asked whether one can deduct travel expenses for permanent positions (or per diem positions) since the site is away form the client's tax residence and home that they keep. Also, in this economy, some have taken permanent jobs to hold them over till the next travel assignment or have accepted permanent positions with no intentions to stay. In our thought processes, we view these jobs as temporary, but unfortunately the tax laws do not accommodate that assumption.

A tax court case released this week involved an individual that took a permanent position to hold him till he found a better job closer to home. It was not his intention to keep the job indefinitely but since the position was factually, a permanent position, the taxpayers (petitioners) claim that he was entitled to away from home travel deductions due on the temporary nature of the job was rejected.

The case is well written without a lot of legalese. Look under the "News" heading of our Website for a link. www.traveltax.com

[Already Gone]

Joe, Please give a little information about what constitutes a permanent position.  Specifically, If I accept a job that has no definite end date, but I to take a month off once a year and return to that job, is it a permanent or temporary job?  What about the same situation, except that there is a scheduled end date that is more than a year away?  Can I just work 11 months, and go work somewhere else for a month to "reset the clock"?
If someone offers me a job that is scheduled to last 3 years, and offers per diem for the first year, is that okay?  What about if they pay the per diem for the whole 3 years but treat it as taxable income after the first year?

[traveltax]

Joe, Please give a little information about what constitutes a permanent position.  Specifically, If I accept a job that has no definite end date, but I to take a month off once a year and return to that job, is it a permanent or temporary job?  What about the same situation, except that there is a scheduled end date that is more than a year away?  Can I just work 11 months, and go work somewhere else for a month to "reset the clock"?
If someone offers me a job that is scheduled to last 3 years, and offers per diem for the first year, is that okay?  What about if they pay the per diem for the whole 3 years but treat it as taxable income after the first year?

Good question

The definition of a tax home is a taxpayer's primary area of income unless they fall under the temporary stay provisions that are laid out in IRS publication 463, which is a layman's overview of the Code and Regulations governing these situations. If the job has no terminus, is open ended or presumed to be permanent, then it is an indefinite position. Taking a month off each year does not change the fact that you are receiving a continuous income stream from the same place nor does it change the nature of your ongoing obligations to a permanent position. If the position was temporary as defined by a contract, a month long break would still not reset the clock and any further work would be considered part of an indefinite position.

There are at least 4 Chief Counsel Memorandums in the IRS literature that address the length of break that is necessary to "reset the clock" for temporary assignments. These memorandums are basically answers to questions posed to the IRS attorneys by appeals agents or other staff. These rulings advise the following: 1) a three week break is insignificant, 2) a 7 month break is significant and 3) a 12 month break is definitely significant. This may be a bit confusing, but if you keep in mind that a tax home is empirically the primary area in which you earn your income, looking at the income of a taxpayer over an extended period of time (like 24 months, 36 months etc) can establish an repetitive pattern of income in the same area. Since audits of temporary professionals are often more than a year, if an agent notices 18 months of income over a 24 month span in the same area, that is ample evidence to posit that the area in question is the "primary place of income". For that reason, we have advised clients to avoid working the same area > 12 out of 24 months, 18 out of 36 etc. or otherwise they would need to have all tax free allowances treated as taxable compensation including the fair market value of any lodging provisions.

The tax home concept is based on a "foreseeable" length of service and any temporary work that lasts beyond a year is considered indefinite. If you accept a position that is more than a year, it is permanent, however, you may structure the contracts for an initial one year period, but the moment pen hits paper to an extended commitment, the tax home shifts and all compensation is taxable. In an audit environment, I would not want to show any prior agreement for extended service.

One thing to keep in mind with contracts. Employers are required to exercise due diligence in screening employees for prior service (to avoid the 12 month rule) and whether the employee has a reasonable basis for a tax home to be away from. However, the burden of proof for an employer is much less that it is for the employee/contractor. A 30 day break could be allowed in an employer audit as a reasonable estimation of a "break in service", however an employee with 23 out of 24 months of service in the same area has obviously established a new tax home.

[Rennhack]

However, the burden of proof for an employer is much less that it is for the employee/contractor. A 30 day break could be allowed in an employer audit as a reasonable estimation of a "break in service", however an employee with 23 out of 24 months of service in the same area has obviously established a new tax home.

I find the last sentence to be very interesting.

Your information is incredible.  This is the first time I have had those questions answered for me in a manner that was believable. Ususally I get a "I heard this, or I heard that".  This is the firs time I have been presented with facts to back up the explanation.

I might not like the answer, but I sure as heck believe it.

(Now to find a way to create a believable 4 week break in service that the IRS would buy into.)

[Already Gone]

Thank you very much.  It's great to have a real expert here to help with these issues.  They are so complicated that it really does take a professional to get through them.

[traveltax]

I find the last sentence to be very interesting.

Your information is incredible.  This is the first time I have had those questions answered for me in a manner that was believable. Ususally I get a "I heard this, or I heard that".  This is the firs time I have been presented with facts to back up the explanation.

I might not like the answer, but I sure as heck believe it.

(Now to find a way to create a believable 4 week break in service that the IRS would buy into.)

If you are going to a new assignment location that is geographically distant from the original, then you do not need a "break in service". That starts a new clock for that area.

[minerbl]

Joe,

I know this info was posted a long while ago, but I wanted to get your read on the same topic.  I have been at my current contract for 20 months, which obviously made my per diem and other items taxable after the first 12 months.  If I take a new contract with a different company in a geographically separate area for 2-6 months, and then if I returned on another contract to the original location, would that reset my tax home there?  Is two months long enough to reset my tax home there or would I need to go for a longer period of time?

[61nomad]

It's been over six years since Joe posted , so I am not sure if he is still listening.  However, I have been a road tech for over 30 years and have never been audited.  (we don't make enough money to bother with)

There is no hard and fast rule.  I would say that 6 months is a lot safer than 2 months, but when you make the majority of your money in one location over a period of five, three, or  even two years the IRS will logically think this is your tax home.  Also, your per diem becomes taxable the moment that you know the job will last longer than one year (tough to prove I know).  It is a good idea to get the one year duration in the offer letter.

Let's not even get into the discussion of whether someone is eligible for taxable per diem. 

[traveltax]

Joe,

I know this info was posted a long while ago, but I wanted to get your read on the same topic.  I have been at my current contract for 20 months, which obviously made my per diem and other items taxable after the first 12 months.  If I take a new contract with a different company in a geographically separate area for 2-6 months, and then if I returned on another contract to the original location, would that reset my tax home there?  Is two months long enough to reset my tax home there or would I need to go for a longer period of time?

The 12 month rule has another hurdle. Work in the same place every year and it will become your tax home (permanent job) unless there is income in another location that exceeds the income at the regularly recurring job location

I have a collection of citations on my blog

https://traveltax.wordpress.com/references-and-citations-2/

[traveltax]

It's been over six years since Joe posted , so I am not sure if he is still listening.  However, I have been a road tech for over 30 years and have never been audited.  (we don't make enough money to bother with)

There is no hard and fast rule.  I would say that 6 months is a lot safer than 2 months, but when you make the majority of your money in one location over a period of five, three, or  even two years the IRS will logically think this is your tax home.  Also, your per diem becomes taxable the moment that you know the job will last longer than one year (tough to prove I know).  It is a good idea to get the one year duration in the offer letter.

Let's not even get into the discussion of whether someone is eligible for taxable per diem. 

It has been 6 years ...... wow. Im still here checking in occasiaonally, but not a lot of tax questions to field 

[Rennhack]

It has been 6 years ...... wow. Im still here checking in occasiaonally, but not a lot of tax questions to field 

We appreciate it.

[Ksheed]

It's been over six years since Joe posted , so I am not sure if he is still listening.  However, I have been a road tech for over 30 years and have never been audited.  (we don't make enough money to bother with)

There is no hard and fast rule.  I would say that 6 months is a lot safer than 2 months, but when you make the majority of your money in one location over a period of five, three, or  even two years the IRS will logically think this is your tax home.  Also, your per diem becomes taxable the moment that you know the job will last longer than one year (tough to prove I know).  It is a good idea to get the one year duration in the offer letter.

Let's not even get into the discussion of whether someone is eligible for taxable per diem. 

No, he answered my question last year.

https://www.nukeworker.com/forum/index.php/topic,39358.msg190033.html#msg190033

It has been 6 years ...... wow. Im still here checking in occasiaonally, but not a lot of tax questions to field 

Glad you still check in. Thanks for all your advice.