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Legal
Advisory
Tax Treatment of Travel Expenses Incurred by NSF Rotators
Many rotators (VSEEs and IPAs) at NSF have raised questions
about the tax consequences of working at NSF as a rotator. One
of the main issues is the deductibility of travel expenses incurred
while working for NSF.
In some cases, rotators may be able to deduct their actual travel
expenses if they exceed the per diem received from NSF. Deductibility
depends on the rotator's expectation about the duration of the
NSF assignment at the start of the assignment. Although this Office
cannot provide tax advice, this advisory is intended to help rotators
understand the general principles governing this issue. Individuals
are encourage to obtain and review Internal Revenue Service Publication
463 and to discuss this issue with their personal tax advisors.
DEDUCTION OF TRAVEL EXPENSES FOR TEMPORARY
EMPLOYMENT
Section 162(a)(2) of the Internal Revenue Code permits the deduction
of ordinary and necessary travel expenses by an individual in
connection with temporary employment away from home. Travel expenses
paid or incurred in connection with indefinite employment away
from home are not deductible. (Peurifoy v. Commissioner, 258 U.S.
59 (1958)).
The Code provides that taxpayers shall not be treated as being
temporarily away from home during any period of employment that
exceeds one year. Under the current interpretation of that provision,
the deductibility of travel expenses depends upon the taxpayer's
expectation about the duration of the assignment.
1. If, at the start of the assignment, the taxpayer reasonably
expects to be away for one
year or less, and the assignment in fact does last one year or
less, all travel expenses incurred during the year are deductible.
2. Conversely, if, at the start of the assignment, the taxpayer
reasonably expects to be away for more than one year, the IRS
considers the assignment indefinite. No travel expenses incurred
during the period are deductible.
3. Changed Circumstances: If, at the start of the assignment,
the taxpayer expects to be away for less than one year, but during
the year of his or her expectations change, the taxpayer may deduct
expenses only for the period before his or
her expectations changed. Travel expenses incurred subsequently are not deductible. For
example, if a taxpayer initially expected to be away for one year,
but after eight months is asked to stay for another seven months
(i.e., he or she now expects to be away a total of fifteen months),
the taxpayer may deduct travel expenses for only the first eight
months. The expenses for the remaining seven months are not deductible.
The IRS position may create some uncertainty among rotators about
the proper tax treatment of their travel expenses. Rotators are
encouraged to seek tax advice from their personal tax advisors
at any time they believe there may be changed circumstances that
affect the duration of their assignment.
3/97 (replaces 3/93 Legal Advisory)
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