The Evolution of a Key Internal Revenue Code Section: The Home Office Deduction

INTRODUCTION Under the Internal Revenue Code (IRC), taxpayers have traditionally been able to deduct all of the "ordinary and necessary" expenses of conducting a trade or business from the revenue generated by such business (Internal Revenue Code [section] 162). For those not engaged in a regular "trade or business but who nevertheless derive some income from a certain activity, their expenses related to the production of that income are also deductible (Internal Revenue Code [section] 212). Thus, many taxpayers have in the past been deducting the cost of maintaining an office at home where they conduct either a regular business or some income producing activities. Examples would cover lawyers, doctors, salesmen using an office at home to prepare legal briefs, consult with patients or perform other administrative tasks related to their income generating work. Given the technological advances making telecommuting more prevalent, and more advantageous for both employees (flexibility, reduced commuting costs,) and employers (cost savings of not having to provide office space), the use of home office has vastly increased in our economy, going from an estimated 1.5 million taxpayers in 1991 to a far larger segment of the work force (Hoffman et al. Individual Income Taxes, 2006 ed. West Federal Taxation, Thompson, South-Western).