Section 274 Commuting Expense Disallowance Rules
Internal Revenue Code Section 274(l) provides that no deduction is allowed for any expense incurred for providing any transportation, or any payment or reimbursement, to an employee of the taxpayer in connection with travel between the employee’s residence and place of employment, except as necessary for ensuring the safety of the employee. For this purpose, unsafe conditions exist if a reasonable person would, under the facts and circumstances, consider it unsafe for the employee to walk to or from home, or to walk to or use public transportation at the time of day the employee must commute. One of the factors indicating whether it is unsafe is the history of crime in the geographic area surrounding the employee’s workplace or residence at the time of day the employee must commute. The disallowance is not subject to the exceptions provided in Internal Revenue Code Section 274(e). The disallowance applies regardless of whether the travel between the employee’s residence and place of employment includes more than one mode of transportation, and regardless of whether the taxpayer provides, or pays or reimburses the employee for, all modes of transportation used during the trip. See Treas. Reg. § 1.274-14.
Key Definitions
The term employee means an employee of the taxpayer as defined in Internal Revenue Code section 3121(d)(1) and (2), that is, officers of a corporate taxpayer and employees of the taxpayer under the common law rules. The term residence means a residence as defined in Internal Revenue Code § 1.121– 1(b)(1). An employee’s residence is not limited to the employee’s principal residence. Under § 1.121–1(b)(1), whether property is used by the taxpayer as the taxpayer’s residence depends upon all the facts and circumstances. A property used by the taxpayer as the taxpayer’s residence may include a houseboat, a house trailer, or the house or apartment that the taxpayer is entitled to occupy as a tenant-stockholder in a cooperative housing corporation. The term place of employment means the employee’s regular or principal (if more than one regular) place of business. An employee’s place of employment does not include temporary or occasional places of employment. An employee must have at least one regular or principal place of business.
No Deduction Even For SIFL Amounts or Reimbursement
Although the matter is not free from doubt, it appears that unlike entertainment travel, no deduction is available to an employer entity for commuting travel subject to this disallowance rule even if income is imputed to the employee or part or all of the costs are reimbursed.
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