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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I am an independent IT consultant residing in New Jersey. From

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I am an independent IT consultant residing in New Jersey. From 10/19/2009 through 4/14/2011, I consulted as an IT Financial Analyst for a Massachusetts utility. I worked onsite 40 hours per week from Monday through Thursday backfilling for a permanent employee who was placed on a software implementation project. She was to return to the position I was backfilling when the implementation was completed. This contract came to me through a third-party recruiting firm which is “engaged in the business of providing temporary workers to businesses” (quoted from the non-disclosure and assignment agreement I signed). My paychecks were issued by the recruiting firm, not the Massachusetts utility. The recruiting firm’s regional office was in New York. The state of Massachusetts selected me for a non-resident audit for 2010 and 2011. Their determination is that because of the length of time (longer than one year) of this temporary assignment, my expenses for commuting to and living in Massachusetts are nondeductible. How can I avoid the “Indefinite Employee” rule and maintain my “Temporary Employee” status which it really is? In my 40 plus years of IT experience, I have found it to be quite common for consulting projects to last much longer than one year. How do the Big 4 consulting firms avoid this issue?

Lev :

Hi and welcome to Just Answer!
How can I avoid the “Indefinite Employee” rule and maintain my “Temporary Employee” status which it really is?
Unfortunately - our interpretation of "temporary" sometimes contradicts with the IRS meaning as it related to job assignment.

Lev :

While the contact might have end date - and based on that we tend to treat such contract as temporary - in situation as you described - when the assignment is longer than a year - the IRS classified it as not temporary - and as a result - deduction of travel expenses is not allowed.


How do big consulting firms get around this issue?

Lev :

Please see for reference IRS publication 463 -
If your assignment or job away from your main place of work is temporary, your tax home does not change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for 1 year or less.However, if your assignment or job is indefinite, the location of the assignment or job becomes your new tax home and you cannot deduct your travel expenses while there. An assignment or job in a single location is considered indefinite if it is realistically expected to last for more than 1 year, whether or not it actually lasts for more than one year.

According to the IRS - you must determine whether your assignment is temporary or indefinite when you start work. If you expect an assignment or job to last for 1 year or less, it is temporary unless there are facts and circumstances that indicate otherwise. An assignment or job that is initially temporary may become indefinite due to changed circumstances.
So - the IRS position is clear and is based on current tax law and regulations.
Unfortunately - I do not see any way of changeling the IRS.
Lev and other Tax Specialists are ready to help you
Q - How do big consulting firms get around this issue?
A - Sometimes employers offer contracts for less than a year. Later - there is a period out of work - for instance a month - and a new contract is offered. So - that would be separate job assignments. However that is a tricky tactic... Such practice is targeted by the IRS and in case of the audit - it is possible that the several assignments still might be classified as ONE assignment.

Sorry for your situation.
Please fell free if you need any clarification or help with other tax related issues.

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