An oral surgeon, who lived in suburban Philadelphia but worked in Westchester County, N.Y., and who lost his bid to deduct tens of thousands of dollars of travel expenses arising from his driving between home and office, provides an important cautionary story for many taxpayers. The Internal Revenue Service’s ruling against him, which was recently upheld by the U.S. Tax Court in Bigdeli v. Commissioner, highlights the breadth of the commuting exception to Section 162 travel expenses.
Javad Bigdeli worked in Elmsford, N.Y., but lived 130 miles away in Gladwyne, Pa. The surgeon drove the route from Gladwyne to Elmsford most days, although he occasionally stayed in hotels to avoid the long trip. The surgeon’s daughter prepared his 2008 and 2009 tax returns using tax preparation computer software. On his Schedules C for those years, Bigdeli claimed nearly $56,000 in vehicle and meal expenses related to this travel. The expenses related to gas, tolls and vehicle maintenance.
The IRS rejected the travel expense deduction and imposed an accuracy penalty related to the underpayment. The Tax Court upheld both IRS determinations. The court concluded that Bigdeli’s expenses did not qualify under Section 162. While Subsection (a)(2) does permit taxpayers to take deductions for “traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business,” the deduction does not apply to the expenses a taxpayer incurs commuting from home to a work site, unless the job is a temporary one.
In Bigdeli’s case, the surgeon’s work in New York was his only job and was not a temporary position. Even though the commute was long, and the surgeon did not return home every night, the trip nevertheless constituted his commute, and the expenses related to it were not deductible.
Additionally, the court determined that the doctor’s meal expenses did not qualify. Only meals in the furtherance of a taxpayer’s business, such as a dinner meeting with clients, are deductible. Because the surgeon had no records indicating this his expenses were anything other than the routine consumption of meals, they did not qualify for the deduction. The court also concluded the imposition of the $5,000 accuracy penalty was proper. The doctor relied solely on his daughter, who had no training in accountancy or tax law, and TurboTax software. This, the court decided, constituted a negligent failure to make a good faith investigation into whether a legal basis existed for the deduction. The ruling demonstrates two lessons: the importance of understanding the deductions and credits one claims, and the risk of overreliance on computer tax preparation software. For Bigdeli, his failure on both of these accounts proved to be a multi-thousand-dollar mistake.
To ensure the deduction and expense claims on your returns will not place you in the IRS’s crosshairs, contact the tax attorneys at Samuel C. Berger, P.C. and CPAs at S.C. Berger, P.C. We offer our New Jersey clients the skill and experience necessary to maximize what the tax code allows. To consult our attorneys and CPAs, contact us online or call (201) 587-1500 or (212) 380-8117.
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