IRS: HOME-OFFICE RULING WON'T BE USED RETROACTIVELY

                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, February 9, 1993                   TAG: 9302090024
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A-4   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium
IRS: HOME-OFFICE RULING WON'T BE USED RETROACTIVELY
The Internal Revenue Service said Monday that it will not apply a new Supreme Court ruling to taxpayers who claimed a deduction for business use of their homes before 1992.
The court, in a Jan. 12 decision, generally upheld the IRS position for determining whether a person's home is the principal place of business. In making that determination, the court held, a taxpayer must consider the relative importance of activities conducted at each business location and the amount of time spent at each.
The law allows a deduction for certain expenses incurred in using a portion of a home exclusively and regularly as a person's principal place of business. The court case touched only the "principal place of business" test.
The IRS noted that its Publication 587, "Business Use of Your Home," was printed before the court decision. A new edition reflecting the ruling will be printed by the end of February.
However, the agency said that taxpayers who reasonably followed the old advice in Publication 587 in claiming a pre-1992 home office deduction will not be penalized.
"We will not challenge those deductions," said IRS spokesman Henry Holmes.
Any taxpayer who would have qualified for a home office deduction for 1992 under the old guidance in the publication will not have to pay estimated-tax penalties if any underpayment results from loss of the deduction because of the court case.
The IRS offered examples of how the principal-place test works:

"Williams," an anesthesiologist, has only one office: a room in her home used regularly and exclusively to contact patients, surgeons and hospitals by phone; maintain records; read medical books and prepare for treatments. She spends 10 to 15 hours a week in the home office and 30 to 35 hours tending to patients in three hospitals.
The home-office activities are less important to Williams' business than the services performed in the hospitals, the IRS said. The fact only about one-third of her working time is spent at home supports the conclusion that the home office is not the principal place of business. The deduction would be denied.

"Jones" averages 30 hours a week in the home office, making most of his sales by phone or mail and working 12 hours in delivering products and occasionally taking an order while visiting customers. Here, the IRS said, "actually visiting customers is less important to . . . [the] business than the sales activities he performs from his home office." The comparison of hours spent in and out of the home office supports the conclusion that the expenses are deductible.

by Archana Subramaniam by CNB