The Oregon Trail Leads to a Cliff

Two recent tax-related cases were decided and happened to be printed on the same newswire. One was a Federal case that was on appeal and the other an Oregon state case. Both involved taxpayers claiming expenses for the use of an RV for business-related activity while on the road. The Federal case made the IRS happy, and the Oregon case… well… the OR state attorneys missed the boat or forgot to ask the IRS.

A little background is necessary before appreciating this.

First, the IRS, following tax court precedent, does not allow a taxpayer to depreciate an RV when it is also used as a residence for more than 14 days. This is well established due to the fact that an RV is very difficult to partition into a home office deduction that requires exclusive use of an area of a residence for business.

Second, Oregon’s tax code specifically mirrors Federal tax law except where the Oregon legislature has decided to deviate. Outside of these exceptions, what the IRS does, Oregon does as well – or is supposed to.

Enter the two cases which are provided for your reading. The Federal case was decided right along the lines of the previous Federal cases addressing RV usage – In fact, this one was an appeal that was upheld. Nothing grand there. However, the Oregon case went down the wrong trail. The attorney for the taxpayer in the Oregon case argued that the RV was deductible, since it was a condition of employment for the taxpayer to maintain his own lodging at various job sites. The Oregon attorney handling the case sort of took the bait and argued against the condition of employment and did not even mention (or was not aware of) the Federal precedent. Well, if procuring lodging near a worksite is a condition of employment and you buy an RV to satisfy that, based on that condition alone, you have a major depreciation deduction. That is where the Internal Revenue Code adds another hurdle preventing one from deducting depreciation for a structure that passes the test of a dwelling, owned by the taxpayer, if they use it for more than 14 days, unless they can carve out exclusive business use of the dwelling from the personal use area.  Can’t do that in an RV.

The Oregon attorney didn’t even mention the Federal case, nor attempt to argue the code section that supported it. Even the judge didn’t think about Federal precedent, but happily set a precedent for Oregon RV owners who want to use RVs for their lodging at worksites.

I called the attorney’s office in Oregon and they said they would probably issue a “non-acquiescence”, which means they just don’t agree with the court. The case is allowed an appeal, so we will wait to see.