S-corp renting apartment for Shareholder

The shareholder lives out of state and travels frequently to the company headquarters. Rather than incur hotels costs for his stay, the s-corporation is considering renting an apartment for him. Is the rent of the apartment considered a business expense?

At first thought, I don't think the travel expenses or the apartment would be deductible business travel expenses (or any deductible expenses). Although the S/H may work remotely and travels to various other locations for the clients, I think his "tax home" is considered to be the location of their headquarters, so if the headquarters are in NY but he lives in Maine, there is no business deduction for his travel or stay while in NY.

It seems that it doesn't make a difference whether or not they rent an apt or pay for hotel stays for the S/H, it still would need to qualify as a biz travel expense and I don't believe it does.

Agree? disagree? any other thoughts?

I was about to say yes, deductible. But the tax home issue might be in play. Just because his ER's HQ is elsewhere don't make that his tax home. If he's only working from his home or remote office and then travelling everywhere, then yes, the apt. would be a great idea and deductible in my opinion.

Now, if he's required to be at HQ 2 weeks out of 4....maybe we don't have what I think we have.

If he lives where he lives for business reasons and must travel to headquarters for business reasons, then costs are deductible. If he lives out of state for personal reasons, then the costs paid by the corporation should be treated as wage income. If he were the sole shareholder, perhaps you could treat costs paid by the corporation as nondeductible and distributions to the shareholder, but of course if there are multiple shareholders, you would have to make sure that distributions in total were proportionate to avoid creating a second class of stock and busting the S election.

Check out Commissioner v. Flowers, 326 U. S. 465 (1946). There are many cases that cite that one that further discuss the issue.