The proper tax treatment of expenses related to the business use of a home has long been an area of ...

1. Multiple and joint business uses of a home office.
The proper tax treatment of expenses related to the business use of a home has long been an area of
controversy. Most recently, the Supreme Court ruled that a taxpayer's home office must "achieve
preeminence in a comparative analysis of the various locations of his trade or business in order for
that office to become the taxpayer's |principal place of business'."(1) The proliferation of computers
and fax machines in the home and the increasing popularity of home-based small businesses may
also serve to intensify the controversy regarding home office deductions. In particular, given the
prevalence of dual-career couples as well as individuals working second jobs or starting part-time
businesses, it is increasingly likely that taxpayers will use a home office in connection with more
than one business activity. For example, a taxpayer might use the same home office in connection
with two or more businesses, or a husband and wife, each engaged in a different trade or business,
might share the same home office.
Under Sec. 280A(c)(1), expenses allocable to a home office are not deductible unless that home
office is "exclusively used on a regular basis" for the following qualifying business purposes: (1) a
principal place of business, (2) a place used to meet or deal with patients, clients or customers, or
(3) in the case of a separate structure not attached to the taxpayer's home, in connection with the
taxpayer's business. If the taxpayer is an employee, the use must also be for the convenience of the
employer. All other types of business uses, such as an employee's use of a home office for his own
convenience, are nonqualifying.(2)
This article will analyze the "exclusive use" requirement as it is applied to multiple use and joint use
home offices.
Multiple Use Home Offices
When a taxpayer uses the same home office in connection with multiple business activities, each use
must be examined to determine if it qualifies under Sec. 280a(c)(1). If none of the business uses are
qualifying, the taxpayer does not satisfy the exclusive use requirement. For example, in
Wedemeyer,(3) the Tax Court disallowed a deduction because the taxpayer used the home office in
connection with his employment as a grocery store manager (but not for the convenience of the
employer) and his own retail sales business (but not as a principal place of business or a place to
meet customers). On the other hand, if each business use is qualifying, it is now clear that the
taxpayer satisfies the exclusive use requirement. As originally enacted, Sec. 280A(C)(1)(A) required
that a home office be the "taxpayer's principal place of business." In order to specify that taxpayers
can claim home office deductions with respect to more than one business activity, Congress
amended this provision in 1981 to read "the principal place of business for any trade or business of
the taxpayer."(4)
A more difficult issue is whether a taxpayer satisfies the exclusive use requirement when he uses a
home office for both qualifying and nonqualifying business purposes. For example, suppose a
taxpayer uses a home office as the principal place of business for a part-time business (a qualifying
use), and to perform duties related to his full-time employment but not for the convenience of the
employer (a nonqualifying use). Will the nonqualifying business use preclude a deduction with
respect to the qualifying business use? Neither Sec. 280A nor the related Tax Reform Act of 1976
(TRA) committee reports specifically address this issue.
The explanation of "exclusive use" provided by Prop. Regs. Sec. 1.280A-2(g)(1) requires only that

2. there be no use of the home office "other than for business purposes."(5) The use of the general term
"business purposes" suggests it is possible to satisfy the exclusive use requirement when using a
home office for both qualifying and nonqualifying business purposes. Prop. Regs. Sec. 1.280A-2(i)(2),
which explains the gross income limitation on home office deductions, also intimates this possibility.
This proposed regulation provides an example of a school teacher who is also engaged in a retail
sales business. The example concludes that, if the teacher uses a home office as the principal place
of business for the retail business (a qualifying use) and makes no "non-business use" of the office,
the gross income limitation is based on the gross income from the retail business. However, the
same limitation applies even if the teacher also corrects student papers and prepares class
presentations in the home office (a nonqualifying use). Since the gross income limitation applies only
if the home office satisfies the exclusive use requirement, this example implies that using a home
office for nonqualifying business purposes does not preclude a deduction with respect to a qualifying
business use.
The Tax Court addressed the issue of qualifying and nonqualifying business uses of a home office in
Hamacher.(6) Hamacher was a self-employed stage actor and an employee of an acting school. As a
self-employed actor, Hamacher used his home office to prepare for auditions, rehearse and receive
calls. As an employee, Hamacher used the same office to develop curriculum and administer the
acting school. The IRS took the position that Hamacher did not satisfy the exclusive use requirement
of Sec. 280A(c)(1). On the basis of the legislative history of Sec. 280A(c)(1), the Tax Court concluded
that a taxpayer satisfies the exclusive use requirement only if each and every business use is
qualifying. In the court's view, Congress enacted Sec. 280A(c)(1) to impose an "all-or-nothing
standard" under which nonqualifying business uses are considered uses that are "personal in
nature." On the
http://learnlanguageshop.com/uncategorized/blogging-success-how-to-make-it-happen/ basis of this
interpretation of exclusive use, the court denied Hamacher a deduction because his use of the home
office in his capacity as an employee was not for the convenience of his employer.
This interpretation of the exclusive use requirement is rather severe. Congress enacted Sec. 280A in
order to preclude expenses "otherwise considered nondeductible personal, living, and family
expenses [from being] converted into deductible business expenses" merely because they have some
connection to a business activity.(7) "Exclusive use . . . means that the taxpayer must use a specific
part of a dwelling unit solely for the purpose of carrying on his trade or business. The use of a
portion of a dwelling unit for both personal purposes and for the carrying on of a trade or business
does not meet the exclusive use test."(8) Therefore, Congress emphasized business versus personal
uses of a home office, not qualifying versus nonqualifying business uses.
Joint Use Home Offices
A closely related issue is the proper interpretation of "exclusive use" in connection with a joint use
home office; that is, a home office used by two taxpayers, such as a husband and wife, in connection
with their separate business activities. If neither spouse's business use is qualifying, the taxpayers
do not satisfy the exclusive use requirement. This was the case in Hynes.(9) Mr. Hynes was a
television newsman whose principal place of business was the television station; Mrs. Hynes was a
real estate broker whose principal place of business was her real estate office. The Tax Court denied
the Hyneses a home office deduction since neither spouse's business use was qualifying.(10) On the
other hand, as illustrated in the Taylor(11) decision, if each spouse's business use is qualifying, the
taxpayers satisfy the exclusive use requirement. The Tax Court allowed a deduction for a
http://www.listentochina.com/?p=31 home office used as the principal place of business for a retail
sales business operated jointly by Mr. and Mrs. Taylor.(12)

3. A more difficult issue is whether or not taxpayers can satisfy the exclusive use requirement when
they use a home office solely for business purposes, but one spouse's business use is nonqualifying.
For example, suppose a husband is self-employed and uses a home office as his principal place of
business, while his wife is an employee who uses the same office for her own convenience. Will the
wife's nonqualifying business use preclude a deduction with respect to her husband's qualifying
business use? Neither Sec. 280A nor the related committee reports specifically address this issue.
Perhaps Congress did not contemplate this possibility when it enacted Sec. 280A in 1976, possibly
because dual-career couples were less prevalent at that time.
This was the fact pattern in Frankel.(13) Mrs. Frankel used a home office as the principal place of
business for her freelance writing business, while Mr. Frankel used the office in his capacity as an
employee of a newspaper publisher. The IRS argued, and the Tax Court agreed, that Mr. Frankel's
use of the home office was nonqualifying. However, in its brief the IRS stated that it did not dispute
that Mrs. Frankel's use qualified under Sec. 280A(c)(1). Instead, the IRS attempted to allocate the
wife's home office deduction based on the 35 days that she was under contract to complete a
particular project, rather than the entire tax year. The court concluded that the IRS's narrow view of
the wife's use was at odds with the facts, and allowed a deduction for the annual expenses
attributable to the office. Thus, the ruling in Frankel is consistent with a liberal interpretation of the
exclusive use requirement, under which taxpayers can obtain a deduction even though one spouse's
business use (in this case, the husband's) is nonqualifying.
It is important to note, however, that in Frankel the Tax Court did not speak directly to the issue of
one spouse's nonqualifying business use. Instead, the court interpreted the IRS's concession that
Mrs. Frankel's use qualified under Sec. 280A(c)(1) as implying that the IRS also conceded that Mr.
Frankel's nonqualifying business use did not preclude a deduction. In addition, the Frankel decision
appears to be inconsistent with the all-or-nothing standard applied by the Tax Court six years later
in Hamacher. According to this test, when a taxpayer uses the same home office in connection with
multiple business ventures, he satisfies the exclusive requirement only if each and every business
use is qualifying. Assuming that the multiple business use of a home office by a single taxpayer is
analogous to the joint business use of a home office by a husband and wife, the Hamacher decision
suggests that the Frankel court reached an erroneous result.
Planning
* Multiple use home offices
Under the all-or-nothing standard established in Hamacher, a taxpayer satisfies the exclusive use
requirement only if each and every business use of the home office is qualifying. Taxpayers should
therefore avoid using the same home office for both qualifying and nonqualifying business purposes.
Whether or not it is practical to maintain separate home offices for separate business uses will
depend on the available space in the taxpayer's home. If the taxpayer's home contains two spare
rooms, he can satisfy the exclusive use requirement with respect to one room by dedicating that
room to qualifying business uses. Since the square footage of a home office affects the amount of the
deduction, dedicating the larger of the two rooms to qualifying business uses will increase the
deduction.(14)

4. If the taxpayer's home contains only one spare room, a key issue will be whether the same room
(e.g., an extra bedroom) can contain two offices, one used for qualifying business purposes and the
other for nonqualifying purposes. The Tax Court addressed this issue in Weightman.(15) Weightman
used a single room within his apartment as both a bedroom and a home office. The IRS argued that
Weightman did not satisfy the exclusive use requirement because he had not physically separated
his office from his bedroom. The court rejected this argument, stating that although the presence or
absence of a wall or other partition is a factor to consider, the physical demarcation of the office
portion of a room is not essential.(16) Consistent with the court's decision, Prop. Regs. Sec. 1.280A-
2(g) (states that the office portion of a home is "a room or other separately identifiable space; it is
not necessary that the [office] portion [of the room] be marked off by a permanent partition."
Therefore, the same room can contain two home offices. To ensure the existence of separately
identifiable spaces, the taxpayer should install a movable room partition or curtain, or rely on some
other type of physical separation (e.g., an L-shaped room).
The strategy of maintaining separate home offices for qualifying and nonqualifying business uses
may create problems with the use of office equipment (e.g., computers, fax machines, chairs, desks).
The use of such equipment for both qualifying and nonqualifying purposes does not directly threaten
the exclusive use requirement since that requirement applies only to the portion of the home used as
an office. However, use of the equipment for nonqualifying purposes must take place outside the
portion of the home dedicated to qualifying business uses. As http://www.planawebs.com/?p=6672 a
result, it may be necessary to furnish each office with its own equipment or to move the equipment
back and forth between the two offices. Although this may be impractical, this result is consistent
with Congress's restrictive approach.
* Joint use home offices
In Frankel, the Tax Court allowed a deduction for a home office used by a wife for a qualifying
business purpose and by the husband for a nonqualifying business purpose. However, since the IRS
effectively conceded this issue in its brief, the court did not speak directly to the issue of one
spouse's nonqualifying business use. Taxpayers should therefore exercise caution in relying on
Frankel.
One strategy for satisfying the exclusive use requirement is to create separate offices (as discussed
above), either by using different rooms or by creating "separately identifiable spaces" within the
same room. The most practical alternative will depend on the available space in the taxpayers' home,
and the logistics of sharing office equipment. If the taxpayers use different rooms as their home
offices, dedicating the larger room to the spouse whose business use is qualifying will increase the
amount of the deduction.
An alternative strategy would be to maintain a single home office, and to allocate the related
expenses between the separate uses of the two spouses. The expenses allocated to the spouse whose
business use is qualifying would be deductible, while the expenses allocated to the spouse whose

5. business use is nonqualifying would not be deductible. This approach has the advantage of
eliminating the need to furnish separate offices or to move equipment back and forth between
offices. It is uncertain, however, whether such an allocation is allowable.
In Hamacher, the Tax Court concluded that the exclusive use requirement is an all-or-nothing
standard "specifically imposed by Congress to put an end to any previous rules containing allocation
methods."(17) Consistent with this view, the Senate Report accompanying a 1977 amendment to
Sec. 280A stated that "the allocation of expenses for a portion of a residence used for business and
personal purposes is no longer relevant where the exclusive use test applies."(18) On the other hand,
in Frankel, the Tax Court seemed to recognize the possibility of an allocation. On the basis of the
IRS's concession in its brief that Mrs. Frankel's use of the home office qualified under Sec.
280A(c)(1), the court concluded "that it is not necessary to allocate the home office expenses
between Mr. and Mrs. Frankel."(19) This conclusion implies that the court believed it was possible to
allocate home office expenses between the qualifying use by one spouse and the nonqualifying use
by the other spouse. To implement this approach, the taxpayers would first allocate the expenses of
maintaining their home (interest, insurance, utilities, depreciation, etc.) to the office portion of the
home. The taxpayers would then allocate the home office expenses between their separate business
activities. Related authorities suggest that time used is an appropriate base for the second
allocation. Before the enactment of Sec. 280A, taxpayers could claim deductions with respect to
home offices used for both business and personal purposes, but only to the extent of the business
use. Home office expenses were allocated between business and personal uses on the basis of
time.(20) Similarly, time is used as an allocation base for purposes of Sec. 280A(c)(4), which allows
deductions with respect to a room used to provide day care services and for personal activities.(21)
To use time as an allocation base, taxpayers must maintain a time log of an office's use.
Conclusion
The proper interpretation of the exclusive use requirement remains unclear with respect to multiple
and joint use home offices. In Hamacher, the Tax Court applied a restrictive all-or-nothing standard
to a multiple use home office. This standard precludes a home office deduction unless each and
every business use qualifies under Sec. 280A(c)(1). The result in Frankel reflects to a less restrictive
interpretation of exclusive use, as applied to joint use home offices. However, since the IRS
effectively conceded this issue in its brief, taxpayers should exercise caution in relying on Frankel.
One strategy for meeting the exclusive use requirement in these situations is to maintain separate
home offices for qualifying and nonqualifying business uses, either by using different rooms for
different purposes or by partitioning a single room into separately identifiable spaces. This strategy
may be impractical, however, given the constraints on living space and the need to share office
equipment. An alternative strategy for a joint use home office is a two-stage allocation, under which
expenses are first allocated to the home office and then allocated a second time between the
separate business activities of the two spouses.
Changes in technology and the workplace make it increasingly likely that taxpayers will use the
same home office in connection with more than one business activity. The legislative history of Sec.
280A provides no indication that Congress anticipated this situation when it crafted the exclusive
use requirement in 1976. In its current form, Sec. 280A(c)(1) seems to indicate that the only sure
way to meet the exclusive use requirement is to maintain separate home offices for qualifying and
nonqualifying business uses. Allowing an allocation of expenses for multiple or joint use home offices
is a more reasonable approach, but may require legislative action to sanction. (1) See "Home Office

6. Deduction Claim Must Hurdle A Comparative Analysis, Justices Rule," BNA Daily Tax Report
(1/13/93), at G-7, for a discussion of Nader E. Soliman, 113 Sup. Ct. 701 (1993) (71 AFTR2d 93-
463,93-1 USTC [paragraph] 50,014), rev'g 935 F2d 52 (4th Cir. 1991) (67 AFTR2d 91-1112, 91-1
USTC [paragraph] 50,291), aff'g 94 TC 20 (1990). See also Knight and Knight, "Supreme Court
Develops New Test for Home Office Deductions," 24 The Tax Adviser 414 (July 1993). (2) Special
rules apply in the case of a portion of a home used to store inventory, put to rental use or used in
providing day care services (Sec. 280A(c)(2), (3) and (4), respectively). (3) Albert J. Wedemeyer, TC
Memo 1990-324. (4) Black Lung Benefits Revenue Act of 1981, Section 113(c). See Staff of the Joint
Committee on Taxation, Summary of the Black Lung Benefits Revenue Act of 1981, Dec. 21, 1981.
(5) Proposed regulations were issued under Sec. 280A on Aug. 7, 1980, amended on July 21, 1983,
and have yet to be finalized. (6) Alfred W. Hamacher, 94 TC 348 (1990). In an earlier case, Charles
A. Scott, 84 TC 683 (1985), the Tax Court refused to express an opinion as to the meaning of
"exclusive use" with respect to a multiple use home office because the IRS did not raise the issue (at
688, n. 4). (7) S. Rep. No. 94-938, 94th Cong., 2d Sess. 147 (1976). 8 Id., at 148. (9) John B. Hynes,
Jr., 74 TC 1266 (1980). (10) Likewise, in Wendell W. Vaughn, TC Memo 1986-578, a home office
deduction was denied because the home office did not serve as the principal place of business for a
general contracting business operated jointly by a husband and wife. (11) Samuel L. Taylor, TC
Memo 1985-499. (12) A deduction was also allowed in Henry J. Langer, TC Memo 1992-46, in which
a home office served as the principal place of for a greeting card business operated jointly by a
husband and wife. A similar result was reached in Thomas C. Cadwallader, TC Memo 1989-356,
which involved the application of the predominant business usage test for listed property (Sec.
280F(b)(3) to a computer used by both a husband and wife. (13) Max Frankel, 82 TC 318 (1984). (14)
Expenses may be allocated to the office portion of a home on the basis of floor space (Prop. Regs.
Sec. 1.280A-2(i)(3)). The Tax Court endorsed this approach when it provided a more precise measure
of the office portion of a home (Ira S. Feldman, 84 TC 1 (1985), aff'd, 791 F2d 781 (9th Cir. 1986)(58
AFTR2d86-5176, 86-1 USTC [paragraph] 9472)). (15) George H. Weightman, TC Memo 1981-301.
Similarly, in George H. Weightman, TC Memo 1982-674. See also Sharon L. Gomez, TC Memo 1980-
565. (16) Nevertheless, the court denied Weightman a deduction because he used the home office in
his capacity as an employee, but not as his principal place of business or for the convenience of his
employer. (17) Hamacher, note 6, at 357. (18) S. Rep. No. 95-66,95th Cong., 1st Sess. 91 (1977).
Section 406 of the Tax Reduction and Simplification Act of 1977 amended Sec. 280A to provide less
stringent rules for the use of a home to provide day-care services. (19) Frankel, note 13, at 330. (20)
See International Artists, Ltd., 55 TC 94 (1970). One controversy was the proper definition of total
time. The IRS and the Ninth Circuit took the position that total time was the time available for use,
or 24 hours a day (Rev. Rul. 62-180, 1962-2 CB 52; George W. Gino, 60 TC 304 (1973), rev'd per
curiam, 538 F2d 833 (9th Cir. 1976)(38 AFTR2d 76-5354, 76-2 USTC [paragraph] 9528)). M Tax
Court maintained that the proper allocation base was time actually used (Alice P. Browne, 73 TC 723
(1980)). (21) Sec. 280A(C)(4)(C) and Prop. Regs. Sec. 1.280A-2(i)(4). To simplify recordkeeping, a
room regularly used for day care and available for day care throughout the business day is
considered used for day care for the entire day (Rev. Rul. 92-3, 1992-1 CB 141).
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