Revenue Ruling 93-86: Defining Your Tax Home

The Internal Revenue Service (IRS) issues Revenue Rulings as official interpretations of the U.S. tax code, applying the law to specific facts for guidance. This article analyzes Revenue Ruling 93-86, which clarifies the definition of a taxpayer’s “tax home” for determining the deductibility of travel expenses.

The Concept of a Tax Home

To understand the rules for deducting business travel expenses, one must first understand the concept of a “tax home.” Under Internal Revenue Code (IRC) Section 162, taxpayers can deduct ordinary and necessary travel expenses when they are “away from home” for business. The IRS defines a person’s tax home as their regular or principal place of business, not their personal residence. This distinction is a frequent point of confusion.

The location of your tax home determines whether a trip is considered business travel or a personal commute. If you travel from your personal residence to your principal place of business, the costs are considered non-deductible commuting expenses. However, if you travel from your tax home to another work location, those expenses may be deductible. The purpose of the deduction is to lessen the financial burden on individuals who must maintain two places of abode due to business requirements.

This framework means that a taxpayer’s tax home can be in a completely different city than where their family resides. For instance, if an individual works in one city during the week and returns to their family home in another city for weekends, their tax home is the city where they work. The choice to live far from one’s principal place of business is considered a personal decision, and the costs associated with that choice are not deductible.

Key Holdings of Revenue Ruling 93-86

Revenue Ruling 93-86 provides specific guidance by presenting three distinct factual situations. The ruling’s primary holding confirms that if a taxpayer has a regular or principal place of business, that location is their tax home. Consequently, the daily costs of traveling between a personal residence and that main business location are non-deductible commuting expenses, as these are incurred for personal convenience.

The ruling also addresses situations involving temporary work assignments. It clarifies that a taxpayer can deduct the costs of traveling to a temporary work location. An assignment is considered temporary if it is realistically expected to last for one year or less. If the work is expected to last for more than one year, it is an indefinite assignment, and the travel costs are not deductible.

A clarification in the ruling involves a change in expectations. If an assignment is initially expected to last for nine months but is later extended to a total of 15 months, the tax treatment changes. The travel expenses are deductible only up to the point when the expectation changed from temporary to indefinite. From that date forward, the expenses become non-deductible personal costs.

Finally, the ruling provides guidance for individuals without a regular or principal place of business, such as itinerant workers. For these taxpayers, their tax home is considered their regular place of abode in a real and substantial sense. If an itinerant worker has no fixed residence and continuously travels from one job to the next, they are “home” wherever they are working and cannot deduct travel expenses because they are not incurring duplicate living expenses.

Identifying the Principal Place of Business

When a taxpayer works in more than one location, determining which one is the principal place of business is necessary. Revenue Ruling 93-86 references an objective, facts-and-circumstances test to make this determination. The IRS weighs three factors to identify the main place of work, and no single factor is controlling; they are evaluated together.

The first factor is the total time the taxpayer ordinarily spends at each business location. This involves a comparison of the hours or days worked at each site. The location where the taxpayer spends the majority of their working time is often a strong indicator of their principal place of business.

A second consideration is the degree of business activity conducted at each location. This factor looks beyond just time spent and examines the nature of the work performed. Activities central to the income-generating function of the business may carry more weight than administrative or support tasks.

The third factor is the significance of the financial return from each location. The IRS will look at the amount of income derived from each place of business. The location that generates the most revenue for the taxpayer is likely to be considered their principal place of business. For example, a consultant might spend 20 hours a week in a home office on administrative tasks and 20 hours a week at a client’s site performing core services. If the client-facing work generates all the income, the client’s site would likely be deemed the principal place of business.