The Tax Court considered the arguments that the unique circumstances of participants in a State Department sponsored summer work travel program show allow them to claim a deduction for their expenses for travel to and from the United States. The Tax Court decided, in the case of Liljeberg, et al v. Commissioner, 148 TC No. 6, that these circumstances did not justify allowing the deduction, instead applying the regular limitation that a taxpayer can only deduct travel to and from his/her tax home under U.S. tax law.
The foreign nationals in the cases before the Court came to the United States for a summer under the Summer Work Travel Program (SWTP), part of the State Department’s Exchange Visitor Program (EVP). As the Court explains the program in question:
The purpose of the SWTP is “to provide foreign college and university students with opportunities to interact with U.S. citizens, experience U.S. culture while sharing their own cultures with Americans they meet, travel in the United States, and work in jobs that require minimal training and are seasonal or temporary in order to earn funds to help defray a portion of their expenses.” Id. sec. 62.32(b). Employment is seasonal when it “is tied to a certain time of the year by an event or pattern and requires labor levels above and beyond existing worker levels.” Id. Employment is temporary “when an employer’s need * * * is a one-time occurrence, a peak load need, or an intermittent need.” Id.
The participants can only participate in the program for a maximum of four months during the break between academic years. The participants enter the United States on nonimmigrant J visas, which is issued to an alien who has a residence in a foreign country which he/she does not plan to abandon, as well as meeting other criteria.
The lead taxpayer in this case (Mr. Liljeberg, a citizen and resident of Finland) was described by the Court as taking the following actions while in the United States:
Pursuant to the SWTP, Mr. Liljeberg entered the United States on May 21, 2012, and departed on September 15, 2012. During most of his time in the United States Mr. Liljeberg worked as a lifeguard at Noah’s Ark in the Wisconsin Dells in the State of Wisconsin, where he earned $4,403.72 in wages. Upon concluding his employment, but before his return to Finland, Mr. Liljeberg traveled to Chicago, Washington, D.C., and New York City. He has not returned to the United States since leaving the country on September 15, 2012.
His tax filings with the United States were outlined as follows:
Mr. Liljeberg filed a Form 1040NR, U.S. Nonresident Alien Income Tax Return, for tax year 2012, dated March 4, 2013. On his tax return he deducted $1,700 in unreimbursed employee expenses. Of that amount, Mr. Liljeberg paid $995 for airfare to and from the United States, $500 for the cost of the program, $35 for the cost of his J visa, and $170 for insurance in the year 2012 in connection with his participation in the SWTP.
IRC §162(a)(2) provides:
§162. Trade or business expenses
(a) In general
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including-
…(2) 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;
To meet that requirement, the Court noted, citing Barone v. Commissioner, 85 T.C. 462, 465 (1985), aff'd without published opinion, 807 F.2d 177 (9th Cir. 1986), that generally to qualify as a deduction under the above provision the taxpayer must meet three criteria:
- The travel must be ordinary and necessary;
- The travel must be incurred while away from his/her tax home (that is, the taxpayer’s principal place of employment); and
- The travel must have been incurred in pursuit of a trade or business.
A personal residence does not normally qualify as the taxpayer’s “tax home” for these purposes, but a special rule applies to being away from home on a temporary basis, rather than one that is permanent or indefinite (Peurifoy v. Commissioner, 358 U.S. 59, 60 (1958)). However, in such a case the deduction is allowed to mitigate the cost of maintaining the permanent tax home to which the taxpayer will return to continue his/her business activities that had previously taken place there.
The IRS objected that these students, while meeting the first and third criteria, did not meet the second criteria as they did not have a principal place of employment in the place they traveled from. The fact that Mr. Liljeberg’s personal residence might be in Finland is not relevant, since his only business was the lifeguard job in Wisconsin. He was currently a student in Finland and even if his absence was guaranteed to temporary (well less than one year) there was no former and future business tax home that he was forced to maintain for business, rather than personal, reasons back in Finland.
The students argued that while the above is generally true, the Fifth Circuit in the case of United States v. LeBlanc allowed for an exception to the rule that should apply in this case.
Petitioners point out that they were residents and citizens of their respective countries during 2012 and were in the United States to work in temporary jobs as part of an exchange program. Per the terms of their visas, they argue, they could not stay in the United States for longer than four months and were required to maintain their residences abroad. See 8 U.S.C. sec. 1101(a)(15)(J). Petitioners liken their situation to that of the taxpayer in United States v. Le Blanc, 278 F.2d 571 (5th Cir. 1960), who, being a justice of the Louisiana Supreme Court and thus required to retain his lifelong home in his district while working in New Orleans, was allowed to deduct as a traveling expense his rental of an apartment in New Orleans. According to petitioners, they were required to maintain their residences in their home countries by provisions of U.S. immigration law and thus were "away from home" for purposes of section 162(a)(2).
However, the Court did not accept this view. The Court notes that while they had to leave the United States at the end of the four months, nothing required that they actually maintain a second abode in their home country to participate in the program.
Rather they found the situation very similar to that of the law student in Hantzis v. Commissioner, 638 F.2d at 255:
The facts in Hantzis, where a law student attending school in one city sought to deduct travel and living expenses she incurred while employed for the summer in a different city, are similar to the facts in petitioners’ situation. Petitioners were full-time students from abroad who came to the United States to work for a single summer before returning to their home countries. Ms. Zolotareva and Mr. Conway had no business connections with their home countries at the time. And while Mr. Liljeberg was employed part time as a security guard in Finland, he terminated that employment before arriving in the United States and did not resume it upon his return. Thus in view of their lack of business connections with their respective home countries, petitioners could not have been “away from home” in 2012.