|Doeren Mayhew |
IRS eases up on local lodging deduction for employees
The IRS has issued proposed “reliance” regulations that allow an employee’s deduction for local lodging that is business-related. Although the proposed regulations are technically not fully effective until published as final regulations, they allow taxpayers to deduct local lodging expenses under Code Sec. 162 (trade or business expenses) if the statute of limitations has not expired for the year of the deduction. In effect, the new rules are effective immediately.
While job-related expenses for travel away from home may be deductible as trade or business expenses, the income tax regulations historically have disallowed the employee’s deduction for local lodging (described as lodging that is not incurred in traveling away from home). However, in 2007, the IRS announced it would amend the regulations to change this rule. In the meantime, it would not challenge an employee’s deduction for temporary local lodging that was necessary for the employee to participate in a business function. The new reliance regulations go even further, with more specifics that liberalize the rules.
The new regulations provide that whether local lodging expenses are incurred in carrying on a taxpayer’s trade or business is determined under all the facts and circumstances. The regulations provide numerous examples of costs that would be deductible under these rules covering such situations as team training, late night projects, and rotating on-duty shifts.
The new regulations also provide the following safe harbor for an employee to deduct local lodging expenses:
These new rules are good news for employees, as well as for employers that want their employees relieved of any tax burden when they are needed for special assignments. If you would like to discuss whether you have any expenses that qualify for this new deduction, please contact Doeren Mayhew, a Michigan CPA firm, for more information.