Question

When is a taxpayer’s work assignment in a new locale temporary? Permanent? What difference does it make?

Answer 1

Temporary indicated that the assignment's termination is expected within a reasonably short period of time. in no event can the period of absence exceed one year. if the taxpayer's assignment is indefinite, and not temporary, his or her tax home changes and travel status ends.

According to the new ruling, employment is temporary only if

• It is realistically expected to last (and does, in fact, last) for one year or less.
• It is initially expected to last for one year or less, but at some later date it becomes apparent the work will exceed one year (the work is temporary only until the date of the changed expectation).

Taxpayers whose residences are their principal places of business, however, may deduct daily transportation expenses between a home office and other temporary or regular work locations related to their trade or business. A home office qualifies as a principal place of business even if it is used only for administrative or managerial activities.

A taxpayer’s tax home refers to the geographical region where s/he earns the majority of his or her income, regardless of his or her permanent residence. While a permanent residence is the mailing address of an individual, the tax home is the location used to determine where a taxpayer has deductible travel expenses.

There are a lot of factors to consider when determining if you should set up an employee as a Temporary Assignment versus a Permanent Relocation.

• Cost Factors – There is a big price difference between relocating an employee for a permanent move versus a temporary one. In a temporary assignment, your employee won’t need homesale assistance; which according to the Worldwide ERC 2015 US Transfer, Volume and Cost Survey, average home sale assistance costs were nearly $43,000 per employee. However, they will need a place to stay during their assignment and temporary living can get to be expensive depending on the employee’s location and length of stay. The average daily rate for a corporate apartment is $150.

Another factor that will help control cost with a temporary assignment is that your employee won’t need to ship their household goods, which averages $12,935 per employee. Since your employee will most likely be on this assignment alone, they will want to be able to return home to visit their family every now and then. Your company will need to determine how many return trips your employee will receive or if you will pay for your employee’s family to visit their temporary location.

• Tax Issues – One of the most significant benefits of a Temporary Assignment is the ability to deduct expenses that occur during the assignment.

Before your employee embarks on their temporary assignment, your company will need to provide them with a letter of assignment that details the length and reason for assignment. If the employee doesn’t have this document or it is not updated to include the length of the assignment, the IRS may determine the assignment was for more than one year or indefinite, and they will treat all expenses as taxable. Also, if the assignment length is updated from temporary to indefinite, the expenses become taxable at the time of the update, not when the assignment exceeds one year.