When Travel Expenses are Business Expenses

Time is the key.

Background. Pastor J is the senior pastor of a church in Town A. He also drives 100 miles to Town B each week to conduct worship services. Are his travel expenses tax-deductible? The answer depends on how long the arrangement lasts. The Tax Court issued a ruling recently that addressed a similar case.

A worker traveled 200 miles each week to perform a temporary job in another town. He returned home each weekend to his family. While the worker was told that the job could be terminated at any time, he ended up working for 27 months. Each year, the worker deducted his travel expenses (mileage, lodging, food) as a business expense. The IRS audited him, and denied the deductions. The worker appealed to the Tax Court.

The court’s ruling. The court conceded that a taxpayer can deduct traveling expenses incurred while away from home, if the following 3 conditions are met: (1) The expense must be reasonable and necessary; (2) it must be incurred while away from home; and (3) it must be incurred in the pursuit of a trade or business. The tax code specifies, however, that a taxpayer “shall not be treated as being away from home during any period of employment if such period exceeds 1 year.” IRC 162(a). The IRS argued that the worker was not “away from home” while he was working in the other town. The court agreed. It noted that a taxpayer’s home generally is

the vicinity of his principal place of employment, not where his personal residence is located. However, if a taxpayer’s principal place of employment is temporary rather than indefinite, the taxpayer’s residence may be considered the taxpayer’s home, and the taxpayer may deduct the expenses associated with traveling to and living at a job site.

The worker claimed that even though his employment in the other town lasted 2 years, it was “temporary” since he was subject to termination at any time. The court dismissed this argument, noting that “in that sense, all employment is temporary in that employees generally serve at the will of the employer.”

The court concluded by noting that the tax code “specifically states that employment in excess of 1 year is not temporary, and [the worker’s] employment exceeded this limitation.”

Relevance to church treasurers. Consider the following:

  1. You know of a pastor who travels to another town to perform services in another church. Do you have a pastor on staff who travels to another town to conduct religious services? Perhaps you know of a retired minister who does so. In either case, the travel expenses can become substantial. Whether they can be deducted by the pastor as a business expense, or reimbursed by the other church under an accountable business expense reimbursement arrangement, depends primarily on the length of the assignment. As this case demonstrates, travel expenses are not “business expenses” unless the work assignment is “temporary” rather than indefinite. The tax code draws the line at 1 year. Any assignment that lasts longer than this is indefinite, which means that the worker’s “tax home” changes and therefore no “travel” expenses are incurred. On the other hand, assignments of less than 1 year generally are temporary, meaning that the travel expenses may constitute a business expense.
  2. Your pastor travels from another town to perform services in your church. If your church employs a pastor who lives in another community, then this case will help you in knowing whether or not you can reimburse the pastor’s travel expenses under an accountable reimbursement arrangement. You can only reimburse legitimate business expenses under such an arrangement, and so if the travel expenses do not qualify as business expenses (because the assignment lasts more than a year) then any reimbursement by the church is not accountable and the full amount of all reimbursements must be added to the pastor’s W-2 at the end of the year. Saric v. Commissioner, T.C. Memo. 2000-8 (2000).
Richard R. Hammar is an attorney, CPA and author specializing in legal and tax issues for churches and clergy.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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