Discussion:Sub S shareholder "commuting"

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Discussion Forum Index --> Tax Questions --> Sub S shareholder "commuting"


Vaughn (talk|edits) said:

8 August 2006
A doctor had previously filed as a sole proprietor on Schedule C. She incorporated as a Sub S in March and is the sole shareholder. She says that she was told that if she used her home address as the corporation address, her drive from home to the clinic (her normal place of business) was NOT commuting, but business mileage. She does not practice medicine at home, but only maintains her corporate records there. She is employed by the Sub S as a doctor.

Is she commuting between her home and the clinic?

Mtmckeecpa (talk|edits) said:

9 August 2006
Flow chart from a recent post


http://www.andrewmitchel.com/charts/commuting_flowchart.pdf

WesR (talk|edits) said:

9 August 2006
Hi nice chart, and to answer the question more bluntly yes you are still commuting. bye

Riley2 (talk|edits) said:

11 August 2006
If the taxpayer does not perform substantial administrative or management functions for the corporation in any location (other than his home office), the home office would qualify as a principal place of business under Sec. 280A(c)(1)(A).

Under Revenue Ruling 99-7, if a taxpayer's residence is the taxpayer's principal place of business within the meaning of section 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.

Death&Taxes (talk|edits) said:

11 August 2006
"For purposes of subparagraph (A) , the term “principal place of business” includes a place of business which is used by the taxpayer for the administrative or management activities of any trade or business of the taxpayer if there is no other fixed location of such trade or business where the taxpayer conducts substantial administrative or management activities of such trade or business." That is code and is post-Soliman, who I recall kept his patient records in his home. I believe he was an anesthesiologist. There is something in the question above that makes it sound like the doctor in this case will do little more than keep the corporate checkbook in her home. Is this sufficient? I see this situation often, and I know the example of the plumber that is usually given, but will patient records make a difference? I practice at my house at the Jersey shore, and travel to Philadelphia 10 days a year to see clients. If I drove to Philly every day, and moved client records and processing to Philly but returned home to do my banking and bill paying in a separate area of my home, do I win? Rhetorical question but I would love to hear thoughts in this post-Soliman atmosphere.

Dennis (talk|edits) said:

11 August 2006
I can add some ambiguity. Patient records will be universally electronic, which in effect means they will have no location? You need a reason to start the day at home to get the first trip and a reason to end there to get the return. Convenience won't fly.

IntlTax (talk|edits) said:

11 August 2006
In this situation, it would seem to me that the "taxpayer" is the doctor and not the S corp. I presume that the doctor is the one that owns the residence. The S corp cannot directly deduct expenses related to the residence if the S corp does not own it. If it is the doctor that owns the residence, then he is an employee of the S corp. The statute states that "[i]n the case of an employee, [the principal place of business exception] shall apply only if the exclusive use . . . is for the convenience of his employer." The convenience of the employer test is a difficult standard to be met, and I suspect it could not be met in the doctor's circumstances. I agree with WesR that she would be commuting if she is traveling to a location within her metropolitan area.

Death&Taxes (talk|edits) said:

11 August 2006
She is a one person incorporated checkbook, as I call them, but her Board of Directors can authorize the requirement that she needs an office for the corporation's convenience, and spell out the reasons. I know SHE is the Board of Directors but corporate form is corporate form and is respected by Courts.

Riley2 (talk|edits) said:

11 August 2006
Revenue Ruling 99-7 has since been amplified by several GCA's and CCA's indicating that the principal place of business of an employee for RR 99-7 purposes includes any location used for management and administrative functions -- even if another location is available for the performance of those functions, as long as the employee chooses not to perform those functions away from his home office. Thus, although Revenue Ruling 99-7 is not binding on the Tax Court and it produces a bizarre result, it is the law of the land.

Death&Taxes, I see no problem with your scenario of doing admin chores at the Jersey shore and deducting your transportation expenses to the place where you meet clients as long as your Jersey admin location meets the "exclusive and regular use" test (as well as the convenience of the employer requirement).

The Tax Court says that an office in home is for the “convenience of the employer” if the home office is required as a condition of employment. Thus, if the shareholder has a clause in his employment contract requiring him to use his home office for admin duties, he has satisfied this requirement.

IntlTax (talk|edits) said:

11 August 2006
My mistake about the convenience of the employer. I had thought it was the more strict test under section 119. It is not.

WesR (talk|edits) said:

11 August 2006
Hi riley I agree in principal with all that is noted. You expanded correctly on when home office qualifies. But I find it hard to believe that assuming this doctor has an office at the clinic where adm duties can be performed she can ARBITRARLLY make up an employement contract to do these at home so she can now deduct commuting expenses. This would be the biggest scam going and I doubt the IRS or the courts would agree. Is this how you see it? bye

Death&Taxes (talk|edits) said:

11 August 2006
Thank you Riley. I think the whole discussion here is how far can we go. Congress smacked the Tax Court and IRS down when it passed the anti-Soliman legislation, and there have been few significant cases since. And face it, it is the 'commuting between offices', not the space that matters. I exclusively use 72 sq feet of a 1950 sq feet house and cannot even get to 2% on my return [my files are kept in a storage space away from here], but each drive from here is a commute.

Pre-Soliman I sat in Tax Court for three home office cases. I was not impressed by District Counsel personnel. They would try to establish non-exclusive use. On the other hand, the judge in one case asked the employee why he did the work in his home, rather than the admittedly inferior office space five miles away. Taxpayer replied, "It's nicer working at home," and despite the statement of the employer requirement, the judge held for the IRS. As I recall, the employer was English and was not called to testify.

Riley2 (talk|edits) said:

11 August 2006
The problem that I see here is that we are on the honor system here. According to the House Committee report for PL 105-34, the home office would need to be used exclusively and regularly for administrative and management functions in order to take advantage of this special definition of a principal place of business. Thus, if a tax preparer brought a few tax returns home and loaded them onto his home office computer, he could not truthfully say that the office was used exclusively and regularly for admin and management functions (unless tax preparation could be treated as a management function).

WesR (talk|edits) said:

11 August 2006
Hi your are right Bah Humbug I wont let a client do it my license is not worth the aggrevation. I wont tell if you wont. bye

Death&Taxes (talk|edits) said:

11 August 2006
I took us away from our doctor here. Maybe she only has 25 square feet with a desk and bookcase. Maybe this can qualify if she uses it 'Regularly.' Before I would permit a client to make this claim, I would listen for words like 'sometimes' or 'on occasion' when she told me how she used the space. What I have found is that people will say the things they think will convince the auditor and I, not realizing how often they shoot themselves in the foot.

Riley makes the good point that it must be adminsitrative and management work. Writing articles for a medical journal won't do to qualify in this context, though perhaps in another. Once again we'd have to go back to a self-serving Board resolution spelling out her professional duties, one of which would be to publish their knowledge, but to do it from home.

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