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I'm looking for a reliable general reference to the IRS "convenience of the employer" test regarding a home office employee deduction.

The IRS test is, the home office must be:

  • a condition of employment
  • necessary for the employer’s business to properly function
  • or needed to allow the employee to properly perform his or her duties.

The examples in the IRS guide clearly refer to an employee who could commute to an office, but for various reasons does not. But that's not my situation at all.

My exact query is specific to the case where the employee lives far away from the office (e.g. employee lives near San Francisco, the main office is in Boston). I'm seeking examples and case law relevant to this situation.

Please note I am aware of the various other home office rules and do not need a tutorial on them. Nor am I seeking specific tax advice (thus I removed the exact details of this situation). I'm seeking references to additional guidance on the "convenience of the employer" test only.

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    nolo.com/legal-encyclopedia/…, and nolo.com/legal-encyclopedia/…, look like good plaintext starting points.
    – keshlam
    Commented Apr 13, 2016 at 0:31
  • Usually these kinds of material are behind a paywall with subscription. People who find it worth their while to pay the subscription are usually tax accountants - CA-licensed CPAs and EAs in your case. You'll probably need to compensate them for working for you, although some may provide a free initial consultation
    – littleadv
    Commented Apr 13, 2016 at 4:25
  • The answer has to depend on many more circumstances. For example: Did the employer require other employees to relocate to Boston and make an exception for you "for your convenience" or did they close the office even though they need people physically located in SF to conduct their business? Just as an example. It's not as simple as your scenario makes it out to be.
    – user32479
    Commented Apr 13, 2016 at 13:40
  • No it's not simple, which is why the IRS test is so murky. The company derives some benefit from having people stationed on the West Coast, but it's not a crucial need as they could fly people out as needed.
    – Bryce
    Commented Apr 15, 2016 at 18:27
  • @Bryce I think you're making it more complicated than it is. Convenience of the employee is irrelevant. In addition, it's not enough the employer derive some convenience from the arrangement. The primary reason for the office must be the employer's convenience. If the facts of your case are that "it's not a crucial need" as stated in your most recent comment, then you unambiguously fail the test.
    – user32479
    Commented Apr 16, 2016 at 16:32

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The decision whether this test is or is not met seems to be highly dependent on the specific situation of the employer and the employee. I think that you won't find a lot of general references meeting your needs.

There is such a thing as a "private ruling letter," where individuals provide specific information about their situation and request the IRS to rule in advance on how the situation falls with respect to the tax law. I don't know a lot about that process or what you need to do to qualify to get a private ruling. I do know that anonymized versions of at least some of the rulings are published. You might look for such rulings that are close to your situation.

I did a quick search and found two that are somewhat related:

  • 8725067 - This is about capitalizing computer equipment in a home office. The employee lives "far" from work (although apparently not as far as you do) and was denied based on failure of the convenience of employer test. The IRS accepted that it might be more efficient for the employee to use the home computer, but it was not a requirement.
  • 8117206 - In this case a property manager passed the convenience of the employer test because the employer explicitly required him to live in a specific place as a condition of employment. (In this case, at the property that he managed.)

As regards your situation, my (non-expert) understanding is that you will not pass in this case unless either (a) the employer specifies that you must live on the West Coast or you'll be fired, (b) the employer would refuse to provide space for you if you moved to Boston (or another company location), or (c) you can show that you could not possibly do your job out of Boston. For (c), that might mean, for example, you need to make visits to client locations in SF on short-notice to meet business requirements. If you are only physically needed in SF occasionally and with "reasonable" notice, I don't think you could make it under (c), although if the employer doesn't want to pay travel costs, then you might still make it under (a) in this case.

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I'm not a tax professional, but as I understand it, you are not expected to commute from San Francisco to Boston. :)

If your employer has not provided you with an external office, then yes, you have very likely met the "convenience of the employer" test.

However, to take the home office deduction, there are many requirements that have to be met.

  • Do you use the home office exclusively for business?
  • Is the home office your principal place of business, or do you do a substantial amount of administrative work there?

You can read more at the Nolo article Can You Deduct Your Home Office When You're an Employee? (Thanks, keshlam)

The home office deduction has many nuances and is enough of an IRS red flag that you would be well-advised to talk to an accountant about it. You need to be able to show that it is exclusively and necessarily used for your job.

Another thing to remember: as an employee, the home office deduction, if you take it, will be deducted on Schedule A, line 21 (unreimbursed employee expenses), among other Miscellaneous Deductions. Deductions in this section need to exceed 2% of your adjusted gross income before you can start to deduct. So it will not be worth it to pursue the deduction if your income is too high, or your housing expenses are too low, or your office is too small compared to the rest of your house, or you don't itemize deductions.

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    The distance is a factor, but the reason for the distance also matters. If the employer has office space for the employee in Boston, distance may not be enough to meet the test since the arrangement could then be for the convenience of the employee, who apparently finds it "convenient" not to relocate. I think this is more scenario-dependent than your answer allows.
    – user32479
    Commented Apr 13, 2016 at 13:45
  • @Brick You might be right. An earlier version of the question suggested that the employer saves travel expenses by having this employer on the West Coast, which I took to mean that the OP does business with people locally. I see that has been edited out now. However, the employer has kept this employee on after closing the office, and allowed him to remain in CA, saving relocation and office expenses. That is a pretty good case for the home office deduction. It is definitely worth talking to an accountant about.
    – Ben Miller
    Commented Apr 13, 2016 at 13:51
  • Re exclusivity: my understanding is that it is possible to claim just part of a room, eg a space partitioned off by a bookcase, as long as that space meets the test. True? (If so I can claim my work desk now, while working on extending that sole-use zone for future years. If not, I'll have to wait until the room has been completely switched over.)
    – keshlam
    Commented Apr 13, 2016 at 23:53
  • Also: what's the definition of "has office space" in these days of "hotelling" offices (desks available for whoever wanders in, rather than assigned to a particular employee)? I don't have an assigned work space, but I could work in one of those if I had a need to be on site...
    – keshlam
    Commented Apr 13, 2016 at 23:58
  • @keshlam Are you an employee, or self-employed? If you are self employed, you are the employer, so your convenience is the employer's convenience. If you are an employee, then it depends on what the employer wants to provide for you.
    – Ben Miller
    Commented Apr 14, 2016 at 0:40
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If your employer does not provide you with a place to work but nevertheless expects you to get work done, then having a place to work is a condition of employment.

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  • Not true for all kinds of jobs --salesmen may spend very little time in an office, ditto tradesmen -- and I think we're looking for something more authoritative than the common sense definition because we aren't convinced that's the one the IRS uses.
    – keshlam
    Commented Apr 15, 2016 at 18:16
  • @keshlam You are misunderstanding my answer. I didn't say "if your employer does not provide you with an office", I said "if your employer does not provide you with a place to work". And this in fact the test -- if you need the office to get most of your work done and your employer doesn't provide one, it's deductible. And that is the IRS's test. See, for example, this article.
    – David Schwartz
    Commented Apr 15, 2016 at 18:33
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    Um. I'm not sure that supports your interpretation. It just refers us back to the undefined "employer's convenience" again.
    – keshlam
    Commented Apr 15, 2016 at 18:36
  • If you need a place to do most of your work, your employer doesn't provide one, and you supply a home office to provide that place to work, you pass the "convenience of the employer" test. You may or may not pass the other tests, of course. So it doesn't follow that you're entitled to the deduction, just that you pass that particular test.
    – David Schwartz
    Commented Apr 15, 2016 at 18:37
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    That may be true, but I don't see it clearly stated in the article you cited. I may be blind, but while I see an example, I do not see a clear definition of that critical phrase. I want you to be correct, obviously...
    – keshlam
    Commented Apr 15, 2016 at 18:39

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