As this my blog is totally non-political, I will not comment on the possible survival of the Summer Work Travel Program (SWTP), which is part of the US Department of State’s Exchange Visitor Program, in its post-2015 iteration. I am concerned today with its earlier variant, as explained by Judge Laro in Richard Liljeberg, et al, 148 T. C. 6, filed 3/16/17.
This case is an anomaly for several reasons. The deficiencies are three-figure amounts (under $200 each); each petitioner (there are three of them) seems to have his or her own lawyer, against only one for IRS; and the fact pattern sounds like a joke: A Finn, a Russian and an Irishman walk into Tax Court….
OK, getting down to business. The three are all full-time students, post-secondary. They come to the US of A on “J” visas (“A J visa is issued to ‘an alien having a residence in a foreign country which he has no intention of abandoning’ and who meets certain other criteria. 8 U.S.C. sec. 1101(a)(15)(J).” 148 T. C. 6, at p. 5).
The idea is a summer in America for full-time foreign students, theoretically doing paying jobs otherwise unfilled, to help defray their educational expenses back home. They’re all on four-month deployments, working and soaking up American culture. They have to pay US income tax, and their three homelands’ tax treaties are off the table here. And when their tours are up, they go back home, where they live and move and have their being.
They claim Section 162 unreimbursed employee expenses, like airfare, visa expense, program cost (undefined; maybe an application or processing fee), and health insurance. The Irishman went one better and claimed meals and entertainment, but that crashes without the need for examination.
Their point is they’re away from home for temporary work.
That’s not good enough for Judge Laro, because when it comes to deducting traveling work expenses, we’re back to “home” being one’s principal place of employment, not where one chooses to reside. All three are students, and studying is not a job. The lead petitioner did work in Finland, but quit that job to come here and didn’t go back to it when he left.
Moreover, the need to maintain two residences must be tied to a business exigency, rather than to personal considerations. The three were students in their home countries, thus not engaged in trade or business there. No business exigency drove them here.
And the fact they have to go back to their native lands after four months doesn’t mean they need to have a permanent residence there; just leave. And immigration law and tax law are not the same.
Thus, their tax home is right here in the USA for the year in question.
IRS concedes the visa expense and the program expense.
Judge Laro is apparently dubious about the program expense, but lets it ride.
“We note that our ‘acceptance of a concession does not mean that the Court has evaluated and accepted the underlying substantive issues or legal principles supporting the concession.’ Fazi v. Commissioner, 105 T.C. 436, 444 (1995). In practice, the Court will accept concessions of law in the interests of judicial economy unless justice requires otherwise. Id. Since petitioners do not oppose respondent’s concession, cf. McGowan v. Commissioner, 67 T.C. 599, 601, 605 (1976) (refusing to accept the Commissioner’s unilateral offer of concession opposed by the taxpayer on the grounds that ‘the interests of justice will be best served by a rejection of such concession’), we will accept it in the interest of judicial economy without expressing an opinion as to its correctness.” 148 T. C. 6, at p. 23.
In plain English, don’t press your luck on this one.
As for health insurance, while it’s included at no extra charge in their countries, they claim paying it here is a business expense because they had to pay to keep their jobs. IRS will let them have the deduction on the same terms as locals: subject to the Section 213(a) AGI limitation. And Judge Laro perforce is down with that.