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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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