ANTICIPATING TAX AUDIT OF SABBATICAL LEAVE EXPENSES
by MICHAEL A. LIEBERMAN
May 2, 1996
I went on a six month sabbatical to Imperial College, London from Feb -
July 1993, for the primary purpose of completing a book manuscript, Principles
of Plasma Discharges and Materials Processing, published by J. Wiley
I claimed the entire six months rent (even though my wife accompanied me),
federal per diem daily rate for meals, my transportation expenses Berkeley-London-Berkeley
(only one such trip can be deducted), and some modest expenses for shipping
technical materials (books and papers) to and from London. (I had no commuting
expenses in London; if I had, these would also be deductible.) I took this
deduction on Schedule C as a deductible business expense. I have been filing
a Schedule C yearly in my business as a "consultant, author, and lecturer".
I supplied a letter from my Department Chair (then Paul Gray) authorizing
the sabbatical, rent receipts, transportation receipts, etc.
At the first audit (Oakland IRS OFfice, 1 hour), I brought all my papers,
eg, drafts of chapters I had written, title pages of theses I had read,
reviews I had done, etc. I brought all my receipts, and my logbook, which
had a day-by-day listing of all my expenses while I was on sabbatical. The
IRS made copies of all of this. I also showed them the book.
The entire amount was disallowed at the first audit. There was no reason
given other than "does not meet IRS guidelines for a deductible expense".
I believe the auditor considered that I had taken a vacation and had no
reason to write my book in London rather than at Berkeley.
I subsequently supplied a letter from then Department Chair Messerschmitt
explaining that I had taken a sabbatical for the purpose of research, book
writing etc. I also supplied a letter from my host professor at Imperial
explaining that I had made use of all facilities there, participated in
research, meetings, used the library, etc. I also supplied a letter from
the housing office of Imperial explaining that my rent would have been the
same if I had not been accompanied by my wife. I also supplied pages from
various tax preparation advice books re sabbaticals (about 8 hours of work
to prepare all of this). All this material was mailed to the Oakland Office.
The entire amount was again disallowed by the same auditor. When I phoned
the auditor, she said that the IRS did not consider education expenses to
be deductible, and that she considered that I had gone on sabbatical to
educate myself. She also said that in my day-to-day expense log, I had not
written every day what I had done, so there was no evidence that I had been
working rather than having a vacation.
At this point I hired a tax accountant, who examined the case (1 hour).
She upheld my view of things and said the only real issue was deducting
my sabbatical expenses on Schedule C rather than Schedule A. Since my sabbatical
salary was paid by the University, the sabbatical was in connection with
my University duties, not my consulting business (even though the principal
purpose of the sabbatical was to write my book).
My accountant said there was no point appealing to the Oakland Office; "they
will uphold their own employees". So I took the next step and appealed
to the IRS District Office (in Walnut Creek).
My accountant accompanied me to the Walnut Office for the appeal. After
about 5 minutes of discussion, the District Appeals Officer overruled the
Oakland Office, with the provision that I transfer most of the deductions
(in proportion to my University salary versus Schedule C income) from Schedule
C to Schedule A. On Schedule A one can only deduct expenses that exceed
2% of gross income. Furthermore, one can get hit with an Alternate Minimum
Tax if your Schedule A deductions are too large. My Alternate Minimum Tax
turned out to be somewhat larger than my regular tax, so I had to pay that.
So moving from Schedule C to Schedule A cost me about a thousand dollars
in increased taxes. However, I still had an enormous tax savings from the
MAKE SURE you do not take a full year sabbatical. A temporary assignment
away from home MUST BE LESS THAN ONE YEAR.
Keep a DAILY LOG of expenses while on sabbatical, including what
you do EACH day.
SAVE all paper, emails, etc until you're sure there will be no audit
(probably seven years is safe).
GET LETTERS before you go from your department chair and your host
professor(s). The point to get across in these letters is that you are being
sent away from home by your employer (The University of California) for
business purposes (not for educational purposes). The business is research,
book writing, etc. The letter should also make the point that it is the
University policy to NOT reimburse the expenses for Professors on Sabbatical
Leave. Getting these letters after you are audited is ok (this is what I
did), but is not as convincing.
Get a letter from your LANDLORD saying that your rental expenses
would be the same even if not accompanied by your spouse. You can then deduct
all your rent expenses, rather than some fraction.
Use the FEDERAL per diem rate for meals (your actual meal expenses
will be much lower than this, but the IRS accepts the federal per diem rate.
You are really in a strong position, because the IRS lawyers are extremely
reluctant to take a case like this to court. So don't give up to much in
the negotiations leading to a settlement.
SAMPLE LETTER from Chair
To Whom It May Concern:
This is to confirm that Professor <<name>> will be on Sabbatical
Leave Assignment at <<college>> in <<city and country>>.,
from <<date>> through <<date>>. His/Her salary will
be paid by the University of California. However, it is University policy
to not reimburse the expenses of faculty members on Sabbatical Leave Assignment.
<<College>> is the most distinguished engineering college in
the <<country>>. and has a strong research program in <<field>>,
the area of Prof. <<name>> expertise, under the direction of
Professor <<name>> required duties during this Sabbatical Leave
Assignment are to conduct research on new technologies in <<field>>.
During this assignment, he/she will perform research on <<specifics>>.
He/She will also <<describe other activities such as reviewing, proposal
writing, book writing, etc>>. He/She will also collaborate with <<researchers>>.
He/She will also attend scientific meetings and serve on various professional
Department of Electrical Engineering and Computer Sciences
SAMPLE LETTER from Host
To Whom It May Concern:
Professor <<name>> will have an unsalaried appointment as a
Visiting Professor in my <<research group name>> from <<date>>
through <<date>>. During that time, he/she will be given access
to and make full use of <<college>> research and administration
facilities, including the following:
Professor <<name>> will participate in the research of the College
and the <<name of group>>, including, but not limited to, the
- An office in <<room and building>>.
- The group's network of computers and workstations, including their use
for research, telecommunications, and research manuscript preparation.
- Secretarial and administrative services.
- Fax, telephone and duplication services.
- Library facilities, especially the <<name of libraries>>.
- The College Housing Office is arranging for Professor <<name>>
and his wife to be housed in a College appartment located <<where>>.
- Conducting research on topics in plasma physics and prepared original
- Performing research for and writing part of a research monograph on
- Consulting on technical and scientific matters relating to <<field>>
with post-graduate students and other staff members of the <<name
- Participating in <<name of group>> meetings.
- Attending <<name of group>> scientific seminars.
- Refereeing technical manuscripts submitted to scientific journals for
- <<any other activities>>
<<name, position, institution>>
SAMPLE LETTER from Landlord
To whom it may concern:
The rent on <<description of location>> was <<rent>>
per week from<<date>> through <<date>>, for the
double occupancy of Professor <<name>> and <<name of spouse>>.
<<Description>> is appropriate for either single or double occupancy.
The rent charged for <<Description>> would have been the same
whether a single person or two persons occupied the premises.
Last updated 5/12/96 by Jean