The IRS Audit Is Wrong on First and Last Stop Rule

Despite what you may think, IRS examiners are only human. This means they can (and often do!) make mistakes.

In this issue of the Tax Reduction Letter we’ll take a look at a case where the IRS examiner mistakenly applied the “first and last stop” business-commuting rule.

Yes. The IRS blew it, but the taxpayer’s CPA saved the day by tapping into the Bradford Tax Institute’s vast knowledge of the IRS’s own arcane rulings.

How did the CPA use the information we provided to save his client’s valuable mileage deductions?

You’ll find out when you read my new article titled Q&A: The IRS Audit Is Wrong on First-and-Last-Stop Rule.

Three ways our fact-filled article can help you:

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First, A little background

The taxpayer had a deductible home office from which he drove to his clients’ places of business. Some days he would visit a single client and return to his home office. On other days he would visit multiple clients. The taxpayer’s record keeping was exemplary.

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1. We’ll explain the IRS’s incorrect position. The IRS stated that the miles the CPA’s client traveled to his first client, and the return back to taxpayer’s office, are commuting miles and therefore the deduction of those miles was disallowed. The IRS concluded that only those miles between clients could be considered business miles. Wrong! You’ll get the whole story when you read the full article.
2. You’ll learn how the CPA took on the IRS and won. We suggested that to crush the audit, the CPA should cite Revenue Ruling 99-7, conclusion paragraph 3* as well as the wording from IRS Publication 463 (which follows Revenue Ruling 99-7)**. The CPA’s client had a principal office in his home that meets Section 280(a)(c)(1)(A) principal office requirements. Accordingly, the IRS’s first and last stop disallowance was overturned. You’ll get all the details when you read the full article.
3. We’ll tell you why the taxpayer won. With the principal office in the home, the taxpayer’s trips from home to his first stop and from his last stop home create deductible business mileage. Revenue ruling overrule IRS publications and are high on the authority scale. (But in the case above, the IRS publication follows the revenue ruling.) We’ll explain everything clearly when you read the full article.

*Revenue Ruling 99-7, conclusion paragraph 3:
If a taxpayer’s residence is the taxpayer’s principal place of business within the meaning of Section 280A(c)(1)(A), the taxpayer may deduct daily transportation expenses incurred in going between the residence and another work location in the same trade or business, regardless of whether the other work location is regular or temporary and regardless of the distance.

**IRS Publication 463 which follows Revenue Ruling 99-7, and states the following on page 13:
… daily transportation expenses can be deducted if … (2) your residence is your principal place of business and you incur expenses going between the residence and another work location in the same trade or business, regardless of whether the work is temporary or permanent and regardless of the distance.