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September 12, 2008

The TaxProf notes questions on whether Alaska Governor Pallin has properly reported per-diem payments she received while she stayed at her home in Wasilla, Alaska. At least one is demanding that she release her tax returns.

The controversy illustrates the importance of correctly identifying your "tax home." You can only deduct travel expenses incurred "away from home," meaning away from your "tax home." If your employer reimburses expenses, only those incurred "away from home" are nontaxable; otherwise, your employer is supposed to put them on your W-2 as taxable compensation.

Your tax home isn't necessarily the place where you live. It's your principal place of business. If some big shot lives in Los Angeles and commutes by private jet to his full-time executive position in New York, he's at "home" in New York, and his meals and lodging there aren't deductible.

The tax home of the Governor of Alaska is presumably the state capital, Juneau. Since Juneau is remote from the rest of the state, Alaska governors travel a lot.


Governor Palin is from Wasilla, which is maybe 40 miles from Anchorage, Alaska's largest city. She apparently took per diems, but not lodging expenses, when she stayed at her Wasilla house. Apparently Alaska also reimburses expenses for family members away from home with the Governor.

It probably isn't too difficult for an Alaska governor to come up with a business reason to go to the Anchorage area; if the trips were on business, per diem reimbursements for meals should be excludible from Governor Palin's income. The tax law doesn't allow you to get tax-free reimbursements for expenses of your family members on your business trips, so expenses for her family members should have been put on her W-2 as taxable compensation. If they weren't, Alaska will probably file an amended W-2 for her during the election silly season.

The IRS has a good summary of the rules for expenses away from home here. We've covered tax home issues, including here and here.

UPDATE, 10/8: More here.

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