The Employee’s Home Office Deduction: The Problem of Duplicate Facilities

The Internal Revenue Code expressly and impliedly allows taxpayers to deduct many business-related expenses that also fill personal needs. However, the deductibility of home office expenses under the general provision for business expenses, section 162 of the Code, has been a frequent subject of litigation. Section 162 requires that the employee establish that the expenses were “ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Since it is well established that working for an employer is carrying on a trade or business within the statute, in order to secure a deduction for the home office in which he performs work for his employer an employee need only prove that his home office expenses were “ordinary and necessary.” “Ordinary” distinguishes deductible expenses from extraordinary expenditures that must be capitalized and depreciated under section 167 of the Code. The Supreme Court has defined a “necessary” expense as one that is “appropriate and helpful” to the taxpayer’s conduct of his trade or business. One point of uncertainty is whether the expenses of maintaining a home office are “necessary” where the employer provides adequate and available office facilities.