Can 1099 contractor deduct mileage and related expenses?

Here is what NATP said in a text.

DAILY TRAVEL
Rev. Rul. 99-7 explains that in general, daily transportation expenses
incurred in going between a taxpayer’s residence and a work location
are nondeductible commuting expenses. However, such expenses are
deductible under the following circumstances.
1. A taxpayer may deduct daily transportation expenses incurred in
going between the taxpayer’s residence and a temporary work
location outside the metropolitan area where the taxpayer lives
and normally works. However, unless paragraph (2) or (3) below
applies, daily transportation expenses incurred in going between the
taxpayer’s residence and a temporary work location within that
metropolitan area are nondeductible commuting expenses.
2. If a taxpayer has one or more regular work locations away from the
taxpayer’s residence, the taxpayer may deduct daily transportation
expenses incurred in going between the taxpayer’s residence and a
temporary work location in the same trade or business, regardless
of the distance.
3. If a taxpayer’s residence is the taxpayer’s principal place of business
within the meaning of §280A(c)(1)(A), the taxpayer may deduct
daily transportation expenses incurred in going between the
residence and another work location in the same trade or business,
regardless of whether the other work location is regular or
temporary and regardless of the distance.
Rev. Rul. 99-7 goes on to explain the three different scenarios in Rev.
Rul. 93-86 with regard to realistically expected to last for one year
or less for making the determination of “temporary work location.” It
also states that the determination that a taxpayer’s residence is the
taxpayer’s principal place of business within the meaning of
§280A(c)(1)(A), i.e., office-in-home deduction, is not necessarily
determinative of whether the residence is the taxpayer’s tax home for
other purposes, including the travel away from home deduction under
§162(a)(2).
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Metropolitan Area
The concept of metropolitan area is important. The idea that a taxpayer
must be away from the vicinity where he or she normally lives and
works must encompass some geographical location in which to define
being away. That geographical location is a metropolitan area.
A particular metropolitan area is based on the facts and circumstances
of each situation. The IRS Pub. 463 says that generally a metropolitan
area includes the area within the city limits and the suburbs that are
considered part of that metropolitan area.
Recent Cases
In T.C. Summary Opinion 2004-117, the Tax Court allowed the
taxpayer’s determination that a 35-mile radius from Wisconsin Rapids,
Wisconsin was his metropolitan area and disregarded the IRS’ alternate
calculations, one of them based on an “economic area” defined by the
Bureau of Economic Analysis of the U.S. Department of Commerce. The
Tax Court held that an ordinary common sense meaning of
“metropolitan area” as that term is used in Rev. Rul. 99-7 applied in
this case and that there are no alternatives to the term in the ruling.
The Tax Court said that it cannot ignore Rev. Rul. 99-7 by adopting
alternatives that, in effect, negate the ruling. The IRS presented no
evidence to show that the 35-mile radius the petitioner used was
unreasonable.
In T.C. Summary Opinion 2007-76, Daniel considered the area within a
45 to 50 mile radius of Burlington, Vermont, to be his metropolitan
area. There was no evidence presented to convince the Tax Court that
this area should be expanded or diminished, and therefore Daniel
properly regarded this area to be the metropolitan area where he lived
and normally worked. He deducted miles to the Mount Storm, West
Virginia, job site. The distance between Daniel’s residence in Burlington
and the Mount Storm job site in question, via the most direct route, was
32 miles. The extra 19 miles that Daniel calculated he drove each day
on his way to the Mount Storm job site were attributable to his choice
to buy breakfast and gas at the Sheetz gas station in Keyser. Daniel
admitted that this particular Sheetz was not the only gas station
available to him, and he further admitted that he drove out of his way
to go to this Sheetz each morning because he liked the food and the
price of gas at that station. Daniel’s decision to drive the extra 19 miles
each morning was thus motivated primarily by personal considerations,
rather than by any requirement of his employer.
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Office-in-Home
A taxpayer who is allowed to deduct home office expenses, whether an
employee or a self-employed individual, is allowed transportation
expenses (not meals and lodging) from the home office to another
business location in the same trade or business (Rev. Rul. 99-7).
Taxpayers are allowed to claim a deduction for the business use of the
home under any of the following circumstances:
 The taxpayer uses a portion of the home regularly and exclusively:
 As the principal place of business for a trade or business
(including administrative or management activities, see details
later);
 As a place to meet with clients, patients, or customers in the
course of the trade or business; or
 In connection with a trade or business, if the location is in a
separate structure not attached to the home.
Note: Exclusively means a specific area of the home used only
for a trade or business.
 If the employer requires the employee to maintain a home office for
its convenience and the employee meets the regular and exclusive
use requirement;
 The taxpayer’s home is used for the storage of inventory or product
samples used in a trade or business of selling products at retail or
wholesale and there is no other fixed location for storage, the regular
and exclusive use requirements do not need to be met; or
 Operating a daycare out of the home, the daycare provider does not
need to meet the regular and exclusive use requirements.
2009 NATP Beyond the 1040 233
Administrative or Management Activities
The office-in-home qualifies as a principal place of business if the
taxpayer meets both of the following requirements:
 The taxpayer uses the office-in-home exclusively and regularly for
administrative or management activities of a trade or business; and
 The taxpayer has no other fixed location where he or she can
conduct substantial administrative or management activities of the
trade or business.
The IRS has listed these examples of the many activities that are
administrative or managerial in nature (IRS Pub. 587):
 Billing customers, clients, or patients.
 Keeping books and records.
 Ordering supplies.
 Setting up appointments.
 Forwarding orders or writing reports.
If there are administrative or management activities performed at other
locations, the IRS has identified the following activities performed by
the taxpayer or others that will not disqualify the home office from
being the taxpayer’s principal place of business:
 The taxpayer has others conduct administrative or management
activities at locations other than the home office. For example,
another company does the billing from its place of business.
 The taxpayer conducts administrative or management activities at
places that are not fixed locations of the business, such as in a car or
a hotel room.
 The taxpayer occasionally conducts minimal administrative or
management activities at a fixed location outside of the taxpayer’s
home.
 The taxpayer conducts substantial nonadministrative or
nonmanagement business activities at a fixed location outside of the
taxpayer’s home. For example, the taxpayer meets with or provides
services to customers, clients, or patients at a fixed location of the
business outside of the home.
 The taxpayer has suitable space to conduct administrative or
management activities outside of his or her home, but chooses to
use the home office for those activities instead.
234 2009 NATP Beyond the 1040
Example: Kathleen is employed as a teacher. She is required to
teach and meet with students at the school and to grade papers and
tests. The school provides her with a small office where she can work
on her lesson plans, grade papers and tests, and meet with parents
and students. The school does not require her to work at home.
Kathleen prefers to use the office she has set up in her home and
does not use the one provided by the school. She uses this home
office exclusively and regularly for the administrative duties of her
teaching job.
Kathleen must meet the convenience-of-the-employer test, even if
her home qualifies as her principal place of business for deducting
expenses for its use. Her employer provides her with an office and
does not require her to work at home, so she does not meet the
convenience-of-the-employer test and cannot claim a deduction for
the business use of her home (Pub 587).
Example: John is a self-employed plumber. Most of John’s time is
spent at customers’ homes and offices installing and repairing
plumbing. He has a small office in his home that he uses exclusively
and regularly for the administrative or management activities of his
business, such as phoning customers, ordering supplies, and keeping
his books. John writes up estimates and records of work completed
at his customers’ premises. He does not conduct any substantial
administrative or management activities at any fixed location other
than his home office. John does not do his own billing. He uses a
local bookkeeping service to bill his customers.
John’s home office qualifies as his principal place of business for
deducting expenses for its use. He uses the home office for the
administrative or managerial activities of his plumbing business and
he has no other fixed location where he conducts these
administrative or managerial activities. His choice to have his billing
done by another company does not disqualify his home office from
being his principal place of business. He meets all the qualifications,
including principal place of business, so he can deduct expenses (to
the extent of the deduction limit) for the business use of his home
(Pub 587).
2009 NATP Beyond the 1040 235
Example: Pamela is a self-employed sales representative for several
different product lines. She has an office in her home that she uses
exclusively and regularly to set up appointments and write up
orders and other reports for the companies whose products she sells.
She occasionally writes up orders and sets up appointments from
her hotel room when she is away on business overnight.
Pamela’s business is selling products to customers at various
locations throughout her territory. To make these sales, she regularly
visits customers to explain the available products and take orders.
Pamela’s home office qualifies as her principal place of business for
deducting expenses for its use. She conducts administrative or
management activities there and she has no other fixed location
where she conducts substantial administrative or management
activities. The fact that she conducts some administrative or
management activities in her hotel room (not a fixed location) does
not disqualify her home office from being her principal place of
business. She meets all the qualifications, including principal place of
business, so she can deduct expenses for the business use of her
home (Pub 587).
Second Job
It is a well-established fact that a taxpayer can claim mileage from a
regular or main job location to a second job location for trips made
within the same day. There is no question when a taxpayer goes from
one employer to another employer, as an employee of both employers,
within the same day. Also Rev. Rul. 99-7 gives the green light for the
transportation expenses from the home office to another business
location in the same trade or business. Finally, from one business
location away from the home to another business location away from
the home is allowed as well, even if there is no office-in-home.
However, there is a need to scrutinize when a taxpayer has an office-inhome
as a principal place of business and is traveling to another
location that is not within that same trade or business. As seen in the
following illustration, a taxpayer cannot determine a transportation
expense deduction if the home is the taxpayer’s principal place of
business.
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2009 NATP Beyond the 1040 237
TAX HOME IN DIFFERENT CIRCUMSTANCES
Barge Operator
In T.C. Summary Opinion 2009-118, Jess was a barge operator residing
in Florida. In 2003, he began working as a barge mate with a company
called Reinauer Transportation Cos., LLC. As a barge mate, Jess was
responsible for the operation and safety of the barge, including
transporting the barge in water deep enough to support the barge’s
draft. Jess reported to New York on January 20, 2003, and remained
employed with Reinauer until 2005. Reinauer did not require Jess to live
in New York, and throughout 2003, he lived in Jacksonville, Florida.
Reinauer’s dispatcher would notify Jess of the time and location of his
next assignment. Jess reported directly to the barge wherever it was
stationed: New York Harbor, Boston, Portland, Providence, or Yorktown.
The barge was stationed in New York Harbor for most of the
assignments; for those assignments, Jess flew to Newark, New Jersey
and took a cab to the barge. On one occasion the barge was stationed
in Virginia and he drove from Florida to the barge. When the barge was
stationed in Maine, Massachusetts, or Rhode Island, Reinauer made
arrangement for Jess to fly out of Newark. He made his own
arrangements to fly from Florida to Newark.
When the barge was stationed outside New York Harbor, Reinauer
either made arrangements or reimbursed Jess for the cost of travel
from New York to the other port. The one occasion where he drove from
Florida to the barge, Reinauer did not reimburse him for the travel
expenses. Reinauer also did not reimburse him for travel from Florida to
New York. His travel expenses included flights to Newark, cab fair to
New York, and tolls.
Prior to this job, Jess worked in Jacksonville and other locations around
the country. He chose to work for Reinauer in New York because he was
paid twice as much for the same work, and had more weeks off.
Working for Reinauer, a barge mate would work two weeks and have
two weeks off, whereas working in Jacksonville, a barge mate would
work two weeks on and one week off.
Jess asserted that his tax home was in Jacksonville where he maintains
a home and resided when not working on Reinauer’s barges. His
238 2009 NATP Beyond the 1040
daughter also lived in Jacksonville. The IRS asserted that his tax home
was in New York where his principal place of employment was.
As a general rule, a taxpayer’s tax home is where his principal place of
employment is. When the taxpayer’s personal residence is in a different
location than where he or she works, the employment must be
temporary versus indefinite before considering that the personal
residence is his or her tax home. Temporary means one year or less
[§162(a)]. Jess’ employment with Reinauer was not temporary. Even
though each assignment typically lasted a fortnight (that is 14 days or
two weeks), he remained employed by Reinauer until 2005, thereby
exceeding the one-year time frame set forth in the tax code.
The Tax Court ruled that Jess’ assertion that his tax home was in
Jacksonville was incorrect and the IRS’ assertion that his tax home was
in New York was correct. The employer furthermore had already made
this determination as well in its pattern of reimbursement or travel
arrangements it made for Jess. Their lack of reimbursing or paying for
travel from Florida to Newark indicated they believed his travel from
Florida to New York was a home to work commute.
Conclusion: Jess’ tax home was where his principal place of
employment was located. The taxpayer’s assignment was not
temporary. It was the taxpayer’s personal preference to live in Florida.
Independent Contractor
In T.C. Summary Opinion 2009-97, Alexander was self-employed in
Pasadena, Texas for 13 months. He contracted on a month-by-month
basis as an independent contractor to merge various medical
recordkeeping systems into a single coherent system. The company
that contracted him for this project was not able to find anyone else to
do the project, and it was questionable as to whether it could be
accomplished. The month-by-month nature of the contract was
presumably designed to leave the possibility open for the company to
abandon the project. Alexander had no prospects for employment with
this company following the completion or termination of this project.
The taxpayer attested that his month-by-month contract was only
expected to last nine to ten months, but it lasted 13 months because of
technological delays (thereby fitting into the third illustration the IRS
provides in Rev. Rul. 93-86).
2009 NATP Beyond the 1040 239
To save money, Alexander stayed with his mother in Pasadena while he
worked on this project. It does not state whether he paid his mother
rent. He was away from his historical tax home in Destrehan, Louisiana
during that time. The residence in Destrehan was his home for at least
20 years and he had a lengthy employment history in that location. His
companion, whom the Court referred to as Ms. M, remained in the
home while he was away in Pasadena. He continued to maintain a home
office, computer, and business records in Louisiana where he
periodically returned to research new hardware and software
technology, find new clients, and for personal reasons. Alexander paid
many of the bills for the Louisiana residence he shared with his
companion and fully intended to return to Louisiana when the project
was complete to perform the same type of work.
The IRS’ contention was that Alexander’s assignment in Texas was
indefinite as opposed to temporary, thereby disallowing the travel
expenses.
The Court examined the facts available to the taxpayer when he began
the project to determine if the taxpayer’s employment away from home
was either temporary or indefinite. The Court found the taxpayer was
correct in his assertion that the project was reasonably expected to last
less than 12 months and that the exigencies of business necessitated
that he maintain his personal residence in Louisiana. Therefore,
Alexander was temporarily away for the first 12 months, allowing him to
claim his travel expenses.
Conclusion: Alexander was temporarily away from home in pursuit of a
trade or business for the first 12 months. He was able to prove his tax
home was in the vicinity of his historical residence. He maintained a
home office in his historical home and returned there periodically to do
business.
No Duplicate Living Expenses
In T.C. Summary Opinion 2009-111, Susan was not entitled to
deductions for meals and travel expenses incurred when she was on a
temporary assignment. Susan was clearly on a temporary assignment
when she accepted temporary employment with CodyCole USA, Inc., a
security firm. The job was expected to last six months (and did last six
months; therefore, meeting the first scenario in Rev. Rul. 93-86).
Susan’s case revolved around duplicate living expenses.
240 2009 NATP Beyond the 1040
Before Susan left for this temporary assignment, she lived with her
boyfriend at his home in Galveston, Texas. During the year in question,
she paid no rent or utilities. With her modest income as a licensed
massage therapist, she paid the monthly satellite television bill. Her job
with CodyCole was to provide onsite monitoring of a construction site in
Shreveport, Louisiana. The job required her to live on the construction
site and to provide 24-hour, 7-days a week monitoring services. She
went to Rigsby Island, Washington, to retrieve her mobile home and
drove it to the construction site in Shreveport.
Susan left personal belongings at her boyfriend’s house in Galveston.
She intended to, and did in fact, return to Galveston upon termination
of her employment with CodyCole. At all times during this temporary
assignment, Susan considered herself a resident of Galveston as
evidenced by the fact that the mobile home was registered in Texas,
she paid Texas personal property taxes on the mobile home, and she
maintained a bank account and post office box in Galveston.
Whether Susan was allowed to deduct $4,158 of meals expenses and
$1,560 of travel expenses as a business expense related to her
employment with CodyCole depended on whether these expenses were
incurred while away from home. To be away from home, Susan must
first have a tax home.
A taxpayer’s residence located in a different location than his or her
principal place of employment can be treated as the tax home if the
taxpayer’s employment is temporary rather than indefinite. Susan
clearly has a temporary employment assignment with CodyCole so the
Court needed to address whether her Galveston residence continued to
be her tax home while she lived in the mobile home on the construction
site in Shreveport.
Without a tax home, the taxpayer’s home is where he or she is, making
the taxpayer an itinerant, not eligible for travel expense deductions
because the taxpayer is never away from home.
The purpose of the “away from home” provision is to alleviate the
burden of having to maintain two places of abode because of the
exigencies of the taxpayer’s trade or business. The taxpayer has a
home when he or she has incurred substantial continuing living
expenses at a permanent place of abode. Susan did not pay rent or
utilities, she only paid for satellite television. The Court found she did
not have substantial, continuing living expenses at her boyfriend’s
house. So when she was in Shreveport, she did not incur additional and
duplicate living expenses.
2009 NATP Beyond the 1040 241
Conclusion: Even though the taxpayer was clearly on a temporary
assignment, she did not have duplicate expenses while away from her
boyfriend’s home. She only paid the satellite television bill at her
boyfriend’s home and had minimal income while living in that home;
therefore, she was unable to prove that the Galveston home was her
tax home.
Itinerant Electrician
In T.C. Summary Opinion 2008-41, Eric was a member of the
International Brotherhood of Electrical Workers, Local 613, located in
Atlanta, Georgia. Erik considered his residence to be in Florida, where
he resided with his wife and her mother when he was not out of town.
He also lived with his brother in Georgia for part of the year. During
2002, the electrician spent a great deal of time looking for work at
various union halls along the east coast. Union procedure periodically
required him to be physically present in order to be considered for local
jobs. During 2002, Erik spent 216 days in New Jersey, either working or
looking for work. When in New Jersey, he lived at the YMCA or rented a
home.
Erik claimed $32,525 in unreimbursed employee business expenses on
Schedule A, most of which were for meals and lodging.
The IRS disallowed the unreimbursed employee business expenses
related to travel, meals, and lodging because he was found to not have
a fixed tax home. He was an itinerant, with each location he worked or
looked for work considered his tax home. The Tax Court sided with the
IRS and determined that the electrician did not have a principal place of
employment, which ordinarily would be considered his tax home. The
Court next determined that the electrician did not have a permanent
place of residence, which could also be considered his tax home. Since
Erik had neither a principal permanent place of residence nor a principal
place of employment, he is not considered to have a tax home;
therefore, he can never be traveling away from home.
Conclusion: The taxpayer was an itinerant; each location he worked or
looked for work was considered his tax home.
242 2009 NATP Beyond the 1040
Room at Parent’s House for Personal Reasons, Not
Business
In T.C. Memo 2008-131, Austin grew up living with his parents in
Idaho. He graduated high school in 1997. In 1998, he enrolled in a
three-month course to become an electrical power lineman. After
completing the course, he joined the Boise local union of the
International Brotherhood of Electrical Workers (IBEW) as an apprentice
lineman. He continued to live with his parents.
In 1999, he enrolled in a California/Nevada-based journeyman lineman
training program partly sponsored by IBEW to pursue a journeyman
lineman position. A similar program was available in Idaho; however,
Austin opted for the CA/NV program as it offered more job
opportunities. This program lasted three-and-a-half years.
As part of this program, Austin didn’t have to pay any fees. He was
required to report to various jobs, and was paid for his labor on the
jobs. The only work he was assigned to was in California. He was never
in one location for more than a year. While assigned to a job location,
he lived in a fifth-wheel travel trailer that he parked near each job site.
For the year in question (2001), Austin only spent 45 days in Boise
residing at his parents’ house. He kept a bedroom and stored furniture,
clothing, two snowmobiles, a boat, and other personal items there.
While it wasn’t clear if he actually paid any rent to stay with his parents,
no evidence was shown to support that he did, nor did his parents
report rental income on their personal income tax return.
On his 2001 income tax return, Austin claimed more than $27,000 of
unreimbursed employee expenses that included meals and lodging while
he was working away from his place of abode in Boise, Idaho. The IRS
disallowed the expense claiming that Boise was not his tax home.
Austin took the matter up in Tax Court.
Generally, a person’s tax home is his principal place of business or
employment. When a taxpayer’s place of abode and principal place of
business are not in the same vicinity, his residence can be treated as
the tax home if his principal place of business or employment is
temporary (i.e., expected to last for less than one year). Other
taxpayers are treated as itinerants, meaning that they have no tax
home.
2009 NATP Beyond the 1040 243
In this case, the Court concluded that there wasn’t a significant
business reason for having a tax home in Boise and that his visits that
amounted to 45 days of the year spent in Boise were not motivated by
business. When he enrolled in the training program, he knew he’d only
be working in CA/NE for the next three-and-a-half years. The Court also
concluded that maintaining a room in his parents’ house in Boise was
for personal reasons. Austin also couldn’t prove that he had duplicate
living expenses as a result of having an alleged tax home in Boise and
working in California. As he could not prove that Boise was his tax
home, Austin’s unreimbursed employee expenses for travel, meals, and
lodging were denied.
Conclusion: Maintaining a room at his parents’ house was for personal
reasons, not business reasons. The taxpayer had no duplicate
expenses. The taxpayer’s tax home was where his principal place of
employment was.
Nontemporary Work Assignments Within Metropolitan
Area
In T.C. Summary Opinion 2009-127, Jose worked as a carpenter on a
daily basis for a building contractor. Each day he drove from his home
to the building contractor’s office to receive his assignment for the day.
From there he would proceed to the jobsite. Jose drove approximately
121 miles each day. Approximately two days a week, Jose went from
the first job to a second job where he also worked as a carpenter. The
second job was near his home, but he drove there from his first job.
Jose kept a log of his daily mileage.
Jose’s construction job was neither temporary nor away from home.
Although he went to the construction company each morning for
direction as to his duties for the day, the Tax Court found this to merely
be part of his commute from his home to his job. Because there was
nothing showing that his employment with the construction company
was either temporary or away from home, or that the jobsites were
outside of his metropolitan area where he lived and normally worked,
he was not entitled to deduct the cost of his transportation to and from
his job.
On the days he drove from his first job to a second job location, the Tax
Court considered the mileage between jobs deductible because of the
244 2009 NATP Beyond the 1040
long standing principal that transportation between jobs or jobsites are
deductible.
Conclusion: Jose could not deduct travel to nontemporary work
assignments that were within his metropolitan area (unfortunately, we
aren’t given any insight into where this area was located). The taxpayer
could deduct travel from his first job location to his second job location