[Congressional Record Volume 143, Number 57 (Tuesday, May 6, 1997)]
[Senate]
[Page S4005]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD:
  S. 703. A bill to amend the Internal Revenue Code of 1986 to clarify 
the deductibility of expenses by a taxpayer in connection with the 
business use of the home; to the Committee on Finance.


                      HOME OFFICE TAX LEGISLATION

  Mr. ALLARD. Mr. President, today I am introducing legislation to 
fully restore the home office tax deduction. This legislation is 
necessary because a recent Supreme Court decision and subsequent IRS 
regulations have made it impossible for many small business 
entrepreneurs to use the home office tax deduction.
  During my service in the House of Representatives I introduced this 
legislation in both the 103d and 104th Congresses. We made great 
progress in the 104th, and even included a full home office tax 
deduction in the Contract With America tax legislation. Unfortunately, 
that tax legislation was vetoed.
  However, by the end of the last Congress we were able to reach 
agreement with the President on a number of small business tax changes, 
and among them was a restoration of the tax deduction for home space 
used for the storage of product samples. This year we should finish the 
job and restore the full home office tax deduction.
  Increasingly, it is the little guy who gets squeezed by the tax 
system. While large corporations can rent space and deduct office and 
virtually all other expenses, many taxpayers who work out of their home 
are no longer able to deduct their office expenses.
  Traditionally, the Tax Code has permitted individuals who operate 
businesses within their homes to deduct a portion of the expenses 
related to that home. However, over the past 20 years Congress, the 
courts, and the IRS have reduced the scope and usefulness of the 
deduction.
  The most serious blow came in 1993 when the Supreme Court's ruling in 
the Soliman decision effectively eliminated the home office deduction 
for most taxpayers. Under the Supreme Court's new interpretation of 
``principal place of business'' a taxpayer who maintains a home office, 
but also performs important business related work outside the home is 
not likely to pass IRS scrutiny.
  This change effectively denies the deduction to taxpayers who work 
out of their home but also spend time on the road. Those impacted 
include sales representatives, caterers, teachers, computer repairers, 
doctors, veterinarians, house painters, consultants, personal trainers, 
and many more. Even though these taxpayers may have no office other 
than their home, the work they perform will often deny them a 
deduction.
  According to the IRS, 1.6 million taxpayers claimed a home office tax 
deduction in 1991. While not all of these taxpayers were affected by 
the Court's decision, many were. Clearly, any taxpayers who operate a 
business out of their home must review their tax situation.
  There are many reasons why a broad home office tax deduction is 
important. The deduction is pro-family. It helps taxpayers pursue 
careers that enable them to spend more time with their children. The 
deduction helps cut down on commuting and saves energy. The deduction 
recognizes the advances of technology--computer and telecommunciations 
advances mean that more and more individuals will be able to work for 
themselves and maintain a home office.

  The deduction is a boost to women and minorities who are increasingly 
starting their own businesses. In fact, over 32 percent of all 
proprietorships are now owned by women entrepreneurs, and Commerce 
Department data reveal that 55 percent of these women business owners 
operate their firms from their home. In addition, there are now well 
over 1 million minority-owned small businesses and a good number of 
these are operated out of the home.
  Finally, the home office tax deduction helps our economy. It benefits 
small businesses and entrepeneurs who develop new ideas, and create 
jobs. Many of America's most important businesses originated out of a 
home.
  Small business is increasingly the engine which drives our economy. 
With large firms downsizing, entrepeneurs must pick up the slack. The 
importance of this trend is demonstrated by the job shift that occurred 
during the slow recovery from the most recent recession. During the 
period of October 1991 to September 1992 large businesses cut 400,000 
jobs while small business created 178,000 new jobs. During the boom 
years of the 1980's, the vast majority of the 20 million new jobs 
created were in the small business sector.
  It is critical that recent assaults on the home office tax deduction 
be reversed. That is why I plan to work hard to see that this change in 
law is enacted as soon as possible.
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