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ExitStrategy

TDY & PDS as pertain to contractor?

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Retread,

A good summation of the salient points and I agree with the notion of reasonableness citing " cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of competitive business ".

Pertaining to 31.201-3, employee has unique skill set and was hired to work on this contract and has only worked on this contract.  Presumably, should travel reimbursement be discontinued, it would be a significant impact to employee and might result in employee seeking employment elsewhere (speculation). 

However, to H2H's point, I still am concerned with the IRS perspective. Although the IRS language addresses the issue of "deductibility", is not the potential issue whether the employees reimbursement should be considered taxable income (which it has not).  That determination in part relies upon whether employee's "movement" from point A (residence) to Point B ("mostly" work station) is travel or commute.  If it is commute, is it a legit contract expense? Seems not.  Found  IRS language as follows:

Topic 511 -  Business Travel Expenses

 

Generally, your tax home is the entire city or general area where your main place of business or work is located, regardless of where you maintain your family home. For example, you live with your family in Chicago but work in Milwaukee where you stay in a hotel and eat in restaurants. You return to Chicago every weekend. You may not deduct any of your travel, meals or lodging in Milwaukee because that is your tax home. Your travel on weekends to your family home in Chicago is not for your work, so these expenses are also not deductible. If you regularly work in more than one place, your tax home is the general area where your main place of business or work is located.

 

In determining your main place of business, take into account the length of time you normally need to spend at each location for business purposes, the degree of business activity in each area, and the relative significance of the financial return from each area. However, the most important consideration is the length of time you spend at each location. 

You can deduct travel expenses paid or incurred in connection with a temporary work assignment away from home. However, you cannot deduct travel expenses paid in connection with an indefinite work assignment. Any work assignment in excess of one year is considered indefinite. Also, you may not deduct travel expenses at a work location if you realistically expect that you will work there for more than one year, whether or not you actually work there that long.

 

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Exit, it looks like the IRS language you quoted relates to an individual claiming a business expense deduction, not a business claiming a deduction.

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I think that the employee is commuting to work each week. 

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I think we've pushed this rock about as far up the hill as it's going to go. So I'm going to excuse myself from further discussion.

My last comment pertains to the statement that this employee has a "unique skillset" that may justify some of this special treatment. Okay. Whatever. It's possible, I suppose.  If the skillset were so unique it might even justify a sole-source award to this contractor! On the other hand, I've been doing this work for a very long time and I have only very rarely seen any individual employee with such a unique skillset that said employee could not be replaced if enough money were on the table to attract a replacement. For instance, if one were to add up the annual reimbursement for travel and lodging and M&IE for this employee and convert it to salary, who knows what that level of compensation might attract?

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Exit, H2H has hinted at something that perhaps you should consider in regard to the employee.  Depending on what your relocation policy is, have you done a cost of two moves analysis and compared that to the cost of paying him lodging and M&IE for his travel?

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