Home workers vs. the taxman

Tax time is a good time to recall Commissioner of Internal Revenue vs. Soliman -- a little publicized 1993 Supreme Court decision that delivered a body blow to the 41 million Americans who work full or part time at home.

Dr. Nader E. Soliman, an anesthesiologist in McLean, Va., spent 30-35 hours a week administering anesthesia and post-operative care in three hospitals, none of which provided him with an office. Soliman spent 2-3 hours per day in his home office, where he did paperwork, studied patients' charts and performed many other tasks related to his medical practice -- though he did not meet patients there. In previous rulings, courts have said a home office may qualify as the "principal place of business" if: 1) the office is essential to the taxpayer's business, 2) the taxpayer spends a substantial amount of time there, and 3) no other location is available for performance of the business office functions. However, when Soliman deducted the cost of his home office from his federal income tax, the IRS said, "no" and the U.S. Supreme Court agreed. Reason: Because Soliman performed his work as an anesthesiologist in three different hospitals, those were his principal places of business. Never mind that Soliman had no other office in which to perform administrative work necessary to his practice.

In a concurring opinion, Justice Harry Blackmun said the court had ruled properly, but the law stunk: "Congress must change the statute's words if a different result is desired as a matter of tax policy."

In response, Rep. Peter Hoagland, D-Neb., a member of the powerful House Ways and Means Committee, introduced HR 3407. Backed by an impressive list of co-sponsors from both parties, this bill would permit deductions for home offices if they are necessary "because the taxpayer has no other location for the performance of the administrative or management activities of the business."

In addition, Rep. Sam Coppersmith, D-Ariz., has introduced a broader measure that would permit telecommuters and those who work at home full-time to deduct the costs of computers, peripherals and other office equipment -- including telecommunications. Coppersmith, like Hoagland, defines a home office as a taxpayer's "principal place of business" if it is "the location where the taxpayer's essential administrative, management or telecommuting activities are conducted on a regular and systematic basis."

Without these bills, know-ledge workers or craft workers who perform significant job functions away from their home offices -- computer or management consultants, veterinarians, anesthesiologists, photographers, salesmen, carpenters, plumbers -- would find it difficult to deduct expenses of a home office used primarily for administrative or management purposes.
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The Hoagland and Coppersmith bills are badly needed correctives. Even if passed, however, they would simply restore a status quo ante that still discriminates against home workers. SOHO (small office/home office) gurus Paul and Sara Edwards have called for a comprehensive federal Home Business Equity and Economic Development Act to address the many unfair regulatory, tax and paperwork burdens imposed on those who work from home.

If Soliman is not reversed by an act of Congress, America's transition from the Industrial Age to the Information Age will take longer and be more difficult.