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Should there be new tax rules for telecommuters?

During the initial pandemic lockdowns of 2020, many people learned for the first time what it was like to work from home. Not everyone loved it, but some employers and employees found telecommuting to be so mutually beneficial that they’re still doing it. And the practice was growing in popularity before the public health crisis anyway.

Now that working remotely is so commonplace, should the IRS update the tax rules regarding the deductibility of travel expenses by employees? The American Institute of Certified Public Accountants (AICPA) thinks so.

Call for clarity

In an August 25 letter to the IRS and U.S. Department of the Treasury, the AICPA called for clarity on several matters. One was determining how an employee should be reimbursed for expenses incurred in traveling to an employer’s work location when travel days are limited and the distance has increased — a scenario that’s become more common and has upended traditional notions of commuting.

The organization said its analysis of new scenarios involving various work arrangements — such as location-based, remote and hybrid — found that “current revenue rulings and interpretations of case law are outdated, do not reflect the current work environment, and are unclear in many instances.”

Travel or commute?

In many modern working arrangements, both the employer and employee view the latter’s residence as the main site at which work is performed. “In many instances, existing tax guidance does not apply to today’s work arrangements to determine when expenses are deductible travel expenses and when such amounts are non-deductible commuting expenses,” the letter states.

Specifically, the AICPA recommended that the IRS and Treasury Dept. revise Revenue Ruling 99-7 to eliminate its reference to the “exclusive use” requirement under Internal Revenue Code Section 280A(c). In addition, the concept of “for the convenience of employer” should be updated, the organization also recommended.

As an alternative, the AICPA suggested creating new guidance to establish a safe harbor for determining a “principal place of business” with specific criteria that would no longer refer to the “exclusive use” requirement of Sec. 280A(c).

Further recommendations

According to the letter, employers are reassessing their fringe benefit programs in response to employees’ questions about remote work arrangements. Such queries include whether remote workers could be reimbursed for travel expenses related to spending time in an employer-provided location, such as an office. The AICPA recommended that the federal agencies:

  • Clarify the tax treatment of non-travel expenses incurred when employees are working remotely,
  • Refine the definition of “pursuit of a trade or business,” and
  • Offer guidance on how modern work location arrangements are delineated.

Because many employers have set policies and positions “based on reasonable interpretations of existing guidance,” new guidance should include transition relief to help employers facilitate compliance, the AICPA told the IRS and Treasury Dept.

Time will tell

Is the AICPA’s letter a harbinger of landmark changes to travel expense rules for employers and employees? Only time will tell. We can keep you updated on this developing story and answer any questions you have about the tax impact of fringe benefits.

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