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Travel for Business ~ Lodging & Per Diem
Preface ~ Client Letter - What this idea is about ~ Introduction ~
Dear Client:
This page describes and offers instructions when you make business trips that require rest overnight and you must spend the evening at a hotel or motel. Herein you will discover how to compute the deductible expenses and what documents the IRS will require you to keep.
The Office of Chief Counsel advised that, although Rev. Proc. 98-64,
1998-52 I.R.B. 32, provides for the use of per diem rates to substantiate
deductions for lodging, meals, and incidental expenses, or for meal
expenses only, it does not provide a method whereby the federal lodging
rate may be used to substantiate deductions for lodging expenses only.
Taxpayers must substantiate unreimbursed lodging expenses in order to
deduct them. Code Section 274.
Please
bear with me for a few short but highly technical paragraphs, which are
usually presented in the techinical sections of these pages. There
is a very serious reasoning for placing these statements outside the
technical section. The reasoning is 
that the proper authority, the law and the regulations, is paramount to
opening the door for substantiation by using methods other than the IRS
requests for documents so typical to this type of deduction.
Logbooks and manual entries along with canceled checks and paid bills are
always requested. Therefore -- please look at the following to
understand both why the IRS must accept and how your existing records may
very well satisfy the substantiation standards.
Learning Objectives (What You Asked) ~ Your Questions: The following questions will be answered
- What is "per diem"?
- What documents are required to protect the deduction
This topic covers both the IRS generic viewpoint, which is usually strict adherence to the "Adequate Records" rule, and the "Other Sufficient Evidence" Rule - which is not well known or understood by most Revenue Agents. The following IRS promulgation emphasizes the IRS must follow the "Other Sufficient Evidence" Rule:
|
1.274-5T(c)(2)(v) |
| (v) SUBSTANTIAL
COMPLIANCE. If a taxpayer has not fully substantiated a particular element of an expenditure or use,
but the taxpayer establishes to the satisfaction of the district director that he has substantially complied with the
"adequate records" requirements of this paragraph (c)(2) with
respect to the expenditure or use, the taxpayer may be permitted to
establish such element by evidence which the district director shall deem adequate.
|
Furthermore the same regulation makes a directive:
|
1.274-5T(c)(3) |
| (3)
SUBSTANTIATION BY OTHER SUFFICIENT EVIDENCE--
(i) IN GENERAL. If a taxpayer fails to establish to the satisfaction of the district director that he has substantially complied with the "adequate records" requirements of paragraph (c)(2) of this section with respect to an element of an expenditure or use, then, except as otherwise provided in this paragraph, the taxpayer must establish such element-- containing specific information in detail as to such element; and (B) By other corrobative evidence sufficient to establish such element.
|
Pub. L. 99-44, Section 1(a), substituted "adequate records or by sufficient evidence corroborating the taxpayer's own statement" for "adequate contemporaneous records", and provided that the Internal Revenue Code of 1954 [now 1986] [this title] shall be applied as if "contemporaneous" had not been added to subsec. (d)
Thereby the law (USC 26 §274) reads as follows:
|
§274(d) |
|
§274(d) Substantiation required ~ No deduction or credit shall be allowed -
|
Engagement Status Letter ~ WARNING!
You have not engaged Bob Parrish CPA PC, Bob Parrish CPA, pro1040, Consulting on line, any related parties, or the ISP to perform any services for you or offer you advice. This entire site is for educational or informational purposes only. The materials are not opinions, advise, legal advice on any matter and have not been tailored to specific jurisdictions, individuals, other entities, or circumstances. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. You must update and validate this information yourself with your own research, experience and the advice of a competent professional adviser in your jurisdiction. The author, the corporation, the ISP, Bob Parrish CPA, Bob Parrish CPA, P.C. or other parties related to those or this site do not guarantee or warrantee in any manner the suitability, usefulness, accuracy, timeliness, or results of any portions of this site, nor the links contained in this site which link to other areas. At times, information is taken from other sources and is believed to be accurate, but no verification or confirmation is performed. Furthermore, if any federal or state law invalidates a portion of this disclaimer, the other portions still apply. In addition, any allegations or actions are restricted to arbitration only and must be arbitrated by the Better Business Bureau in Sarasota Florida. Reading of these pages constitutes complete acceptance and agreement with all disclaimer provisions on all pages of this site. ....... Sunday, March 04, 2007 08:48 AM
Bob Parrish CPA:
License Jurisdictions —
CPA: LA, FL, TX
Summary
|
Mr.
Business was always on the go |
Related Information
-
A few closely related topics & pages From Bob Parrish CPA PC (left-click this to expand it):
Travel Expenses
-
Charts:
Plain English Explanation
Object Restated
Why or How It Works
Alternatives
Cost V. Benefit
Other
Reserved
Your Answers
This Topic OBJECTIVE is: What it does Explanation of this topic and how it may affect you (for how it may affect you also refer to : Financial Accounting: Bookkeeping & Financials ~ Compliance - What is required for protection, defense, etc. ~ Alerts & Dangers)
To start look at the following chart:
If one uses the per diem, then the amount column is automatically accepted by the IRS. However one must "properly substantiate" the lodging. "Properly Substantiate" is covered next.
Very Important for those in the transportation industry:
Properly Substantiate
This is a Private Letter Ruling responding to a request of a taxpayer dated February 8, 1999. This document is assigned an identification of PLR 199917059. This letter presents the IRS viewpoint regarding the use of the IRS Per Diem amount for lodging.
Code
Sec. 274 *
Sec. 274 Issues: Disallowance of certain entertainment, etc.,
expense (allowable v. not allowable) -- Traveling.
This
is in response to your request for information regarding the use of per
diem rates to substantiate travel expenses, particularly with regards to
the use by independent contractors of the federal lodging rate to
substantiate deductions. I hope you find this information helpful.
Please
be aware that this Chief Counsel Advice is for your general information
and is advisory only. It is not intended to be conclusive as to the tax
consequences of this matter to any specific taxpayer.
Section
274(d)(1) of the Internal Revenue Code provides, in part, that no
deduction shall be allowed under section 162 for any traveling expense
(including meals and lodging while away from home) unless the taxpayer
substantiates by adequate records or by sufficient evidence corroborating
the taxpayer's own statement the amount of the expense, the time and place
of the travel, and the business purpose of the expense. Section 274(d)
further provides that regulations may prescribe that some or all of the
substantiation requirements do not apply to an expense that does not
exceed an amount prescribed by such regulations.
Section
1.274-5T(c) of the Income Tax Regulations provides the rules of
substantiation by adequate records. To meet the "adequate
records" requirement, taxpayers must maintain a contemporaneous
account book, diary, log, statement of expense, trip sheets, or certain
similar record, and documentary evidence that, in combination, are
sufficient to establish each element of a travel expenditure. Section
1.274-5T(c)(2)(iii)(A) provides that, in the case of expenditures for
lodging while traveling away from home, taxpayers must provide documentary
evidence, such as receipts, paid bills, or similar evidence sufficient to
support the expenditure.
Section
1.274(d)-1T(a), in part, grants the Commissioner the authority to
prescribe rules relating to substantiating the amount of expenses
reimbursed under reimbursement arrangements (including per diem
allowances) for ordinary and necessary expenses paid or incurred while
traveling away from home. For meals while traveling away from home,
section 1.274-5T(j) grants the Commissioner the authority to establish a
method under which a taxpayer may elect to use a specified amount in lieu
of substantiating the actual cost of meals.
Pursuant
to these two separate sources of authority, the Internal Revenue Service
provides a revenue procedure for the use of per diem rates to substantiate
traveling expenses, most recently published as Rev. Proc. 98-64, 1998-52
I.R.B. 32. Sections 4.01 and 4.02 of the revenue procedure implement
section 1.274(d)-1T(a) by allowing employers to treat as substantiated
certain traveling expenses incurred by employees that are reimbursed under
an accountable plan. Section 4.03 of the revenue procedure implements
section 1.274-5T(j) by allowing employees and self-employed individuals to
use the federal M&IE rate to substantiate meal expense deductions.
However,
the revenue procedure does not provide a method whereby the federal
lodging rate may be used to substantiate deductions for lodging expenses.
In fact, the regulations do not authorize the Service to provide such a
substantiation method. Rather, as noted, section 1.274-5T(c)(2)(iii)(A)
requires that taxpayers provide documentary evidence, such as receipts,
paid bills, or similar evidence sufficient to support an expenditure for
lodging while traveling away from home.
Accordingly,
if a taxpayer wishes to deduct unreimbursed lodging expenses, the taxpayer
must substantiate the expenses as required under section 1.274-5T. The
taxpayer may not treat the expenses as substantiated by relying on the
federal lodging rate.
If
you need further assistance in this matter, please contact my office at
(202) 622-4920. (NOTE: this is the telephone number of the IRS
personnel writing this PLR)
One is then left to prove the other items.
For the self-employed, the IRS will usually require a receipt from a motel or hotel.
Adequate evidence. Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.
For example, a hotel receipt is enough to support expenses for business travel if it has all of the following information.
- The name and location of the hotel.
- The dates you stayed there.
- Separate amounts for charges such as lodging, meals, and telephone calls.
A restaurant receipt is enough to prove an expense for a business meal if it has all of the following information.
- The name and location of the restaurant.
- The number of people served.
- The date and amount of the expense.
Canceled check. A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose.
Duplicate information. You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner.
You do not have to record amounts your employer pays directly for any ticket or other travel item. However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend.
Timely-kept records. You should record the elements of an expense or of a business use at or near the time of the expense or use and support it with sufficient documentary evidence. A timely-kept record has more value than a statement prepared later when generally there is a lack of accurate recall.
You do not need to write down the elements of every expense on the day of the expense. If you maintain a log on a weekly basis which accounts for use during the week, the log is considered a timely-kept record.
If you give your employer, client, or customer an expense account statement, it can also be considered a timely-kept record. This is true if you copy it from your account book, diary, statement of expense, or similar record.
Proving business purpose. You must generally provide a written statement of the business purpose of an expense. However, the degree of proof varies according to the circumstances in each case. If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation.
Confidential information. You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense.
Incomplete Records
If you do not have complete records to prove an element of an expense, then you must prove the element by:
- Your own written or oral statement, containing specific information about the element, and
- Other supporting evidence that is sufficient to establish the element.
Destroyed records. If you cannot produce a receipt because of reasons beyond your control, you can prove a deduction by reconstructing your records or expenses. Reasons beyond your control include fire, flood, and other casualty.
Travel - Email and Fax Qualify as Evidence
Accountable
Plans: To be an accountable plan, your employer's reimbursement
or allowance arrangement
must include all three of the following rules.
1) Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
2) You must adequately account to your employer for these expenses within a reasonable period of time.
3) You must return any excess reimbursement or allowance within a reasonable period of time.
Accountable plan; Accountable Plans
Start of Plain English Section
Why or How it works - Both Sides of the Equation and Examples:
Start of Plain English Section
Comparisons
Contrasts
Start of Plain English Section
Cost v. Benefit Analysis ~ Its Value
Start of Plain English Section
Here are some other chart or examples that are related:
Weekly Travel & Reimbursement Form
Weekly Travel & Entertainment Report
Start of Plain English Section
Start of Plain English Section
Technical Analysis and Explanation
Commentary
Law
Regs
Cases
Revenue Procedures
Revenue Rulings
Private Letter Rulings
Commentary
In most circumstances only the
"Adequate Records" rules will be covered by a government
auditor. Therefore you should become familiar with the "Other
Sufficient Evidence" rule -- which is covered in Internal REvenue
Regulation §1.274-5T(c)(3) and in other related regulations, rulings and
legislation.
Please read the related the related documents listed in various parts of this page.
Travel - Email and Fax Qualify as Evidence
Following is an excerpt from the Internal Revenue
written Regulation §1.274-5T(c)(3) and following. The section
§1.274-5T(c)(2) defines "Adequate Records" and is covered by
the IRS in the Letter Ruling shown in the Plain English Section of this
page. However, that letter does not very well cover, also
described in the Regulations and the Law, what to do if the records do not
closely resemble the "Adequate Records" or if the taxpayer has
lost or misplaced some of the records. Therefore the related
Regulation is presented.
(3) SUBSTANTIATION BY OTHER SUFFICIENT EVIDENCE--
(i) IN GENERAL. If a taxpayer fails to establish to the
satisfaction of the district director that he has substantially complied
with the "adequate records" requirements of paragraph (c)(2)
of this section with respect to an element of an expenditure or use, then,
except as otherwise provided in this paragraph, the taxpayer must
establish such element--
(A) By his own statement, whether written or oral, containing
specific information in detail as to such element; and
(B) By other corrobative evidence sufficient to establish such
element.
If such element is the description of a gift, or the cost or
amount, time, place, or date of an expenditure or use, the corrobative
evidence shall be direct evidence, such as a
statement in writing or the oral testimony of persons entertained
or other witnesses setting forth detailed information about such element,
or the documentary evidence described in paragraph (c)(2) of this section.
If such element is either the business relationship to the taxpayer of
persons entertained, or the business purpose of an expenditure, the
corrobative evidence may be circumstantial evidence.
(ii) SAMPLING--
(A) IN GENERAL. Except as provided in paragraph (c)(3)(ii)(B) of
this section, a taxpayer may maintain an adequate record for portions of a
taxable year and use that record to substantiate the business/investment
use of listed property for all or a portion of the taxable year if the
taxpayer can demonstrate by other evidence that the periods for which an
adequate record is maintained are representative of the use for the
taxable year or a portion thereof.
(B) EXCEPTION FOR POOLED VEHICLES. The sampling method of paragraph
(c)(3)(ii)(A) of this section may not be used to substantiate the
business/investment use of an automobile
or other vehicle of an employer that is made available for use by more
than one employee for all or a portion of a taxable year.
(C) EXAMPLES. The following examples illustrate this paragraph
(c)(3)(ii).
EXAMPLE 1. A, a sole proprietor and calendar year taxpayer,
operates an interior decorating business out of her home. A uses an
automobile for local business
travel to visit the homes or offices of clients, to meet with
suppliers and other subcontractors, and to pick up and deliver certain
items to clients when feasible. There is no other business use of the
automobile but A and other members of her family also use the automobile
for personal purposes. A maintains adequate records for the first three
months of 1986 that indicate that 75 percent of the use of the automobile
was in A's business. Invoices from subcontractors and paid bills indicate
that A's business continued at approximately the same rate for the
remainder of 1986. If other circumstances do not change (e.g., A does not
obtain a second car for exclusive use in her business), the determination
that the business/investment use of the automobile for the
taxable year is 75 percent is based on sufficient corroborative
evidence.
EXAMPLE 2. The facts are the same as in example (1), except that A
maintains adequate records during the first week of every month, which
indicate that 75 percent of the use of the automobile is in A's business.
The invoices from A's business indicate that A's business continued at the
same rate during the subsequent weeks of each month so that A's weekly
records are representative of each month's business use of the automobile.
Thus, the determination that the business/investment use of the automobile
for the taxable year is 75 percent is based on sufficient corroborative
evidence.
EXAMPLE 3. B, a sole proprietor and calendar year taxpayer, is a
salesman in a large metropolitan area for a company that manufactures
household products. For the
first three weeks of each month, B uses his own automobile occasionally to
travel within the metropolitan area on business. During these three weeks,
B's use of the automobile for business purposes does not follow a
consistent pattern from day to day or week to week. During the fourth week
of each month, B delivers to his customers all the orders taken during the
previous month. B's use of his automobile for business purposes, as
substantiated by adequate records, is 70 percent of the total use during
that fourth week. In this example, a determination based on the records
maintained during that fourth week that the business/investment use of the
automobile for the taxable year is 70 percent is not based on sufficient
corroborative evidence because use during this week is not representative
of use during other periods.
(iii) SPECIAL RULES. See Section 1.274-6T for special rules for
substantiation by sufficient corroborating evidence with respect to
certain listed property.
(4) SUBSTANTIATION IN EXCEPTIONAL CIRCUMSTANCES. If a taxpayer
establishes that, by reason of the inherent nature of the situation--
(i) He was unable to obtain evidence with respect to an element of
the expenditure or use which conforms fully to the "adequate
records" requirements of paragraph (c)(2) of this section,
(ii) He is unable to obtain evidence with respect to such element
which conforms fully to the "other sufficient evidence"
requirements of paragraph (c)(3) of this section, and
(iii) He has presented other evidence, with respect to such
element, which possesses the highest degree of probative value possible
under the circumstances, such other evidence shall be considered to
satisfy the substantiation requirements of section 274(d) and this
paragraph.
(5) LOSS OF RECORDS DUE TO CIRCUMSTANCES BEYOND CONTROL OF THE
TAXPAYER. Where the taxpayer establishes that the failure to produce
adequate records is due to the loss of such records through
circumstances beyond the taxpayer's control, such as destruction by
fire, flood, earthquake, or other casualty, the taxpayer shall have a
right to substantiate a deduction by reasonable reconstruction of his
expenditures or use.
(6) SPECIAL RULES--
(i) SEPARATE EXPENDITURE OR USE--
(A) IN GENERAL. For the purposes of this section, each separate
payment or use by the taxpayer shall ordinarily be considered to
constitute a separate expenditure. However,
concurrent or repetitious expenses or uses may be substantiated as
a single item. To illustrate the above rules, where a taxpayer entertains
a business guest at dinner and thereafter at the theater, the payment for
dinner shall be considered to constitute one expenditure and the payment
for the tickets for the theater shall be considered to constitute a
separate expenditure. Similarly, if during a day of business travel a
taxpayer makes separate payments for breakfast, lunch, and dinner, he
shall be considered to have made three separate expenditures. However, if
during entertainment at a cocktail lounge the taxpayer pays separately for
each serving of refreshments, the total amount expended for the
refreshments will be treated as a single expenditure. A tipmay be treated
as a separate expenditure.
(B) AGGREGATION OF EXPENDITURES. Except as otherwise provided in
this section, the account book, diary, log, statement of expense, trip
sheet, or similar record required by paragraph (c)(2)(ii) of this section
shall be maintained with respect to each separate expenditure and not with
respect to aggregate amounts for two or more expenditures. Thus, each
expenditure for such items as lodging and air or rail travel shall be
recorded as a separate item and not aggregated. However, at the option of
the taxpayer, amounts expended for breakfast, lunch, or dinner, may be
aggregated. A tip or gratuity which is related to an underlying expense
may be aggregated with such expense. In addition, amounts expended in
connection with the use of listed property during a taxable year, such as
for gasoline or repairs for an automobile, may be aggregated. If these
expenses are aggregated, the taxpayer must establish the date and amount,
but need not prove the business purpose of each expenditure. Instead, the
taxpayer may prorate the expenses based on the total business use of the
listed property. For other provisions permitting recording of aggregate
amounts in an account book, diary, log, statement of expense, trip sheet,
or similar record, see paragraphs (b)(2)(i) and (b)(3) of this section
(relating to incidental costs of travel and entertainment).
This
is Revenue Procedure 2000-9 superceding this topics former Revenue
Procedure 98-64. This is a
technical explanation from the Internal Revenue Service of the Service’s
position (not necessarily that of a court, or Congress, although the
Service will usually make honest attempts to incorporate most of the other
branch’s viewpoints in its opinions).
This explanation covers how the Internal Revenue Service believes
taxpayers should treat lodging (along with meals and incidentals) under
either the actual cost method or the per diem method.
Code
Secs. 62, 162, 267, 274
<<FULL
TEXT>>
26
CFR 601.105: Examination of returns and claims for refund, credit, or
abatement;
determination of correct tax liability.
(Also
Part I, sections 62, 162, 267, 274; 1.62-2, 1.162-17, 1.267(a)-1,
1.274-5T,
1.274(d)-1T)
REV.
PROC. 2000-9
SECTION
1. PURPOSE
This revenue procedure updates Rev. Proc. 98-64, 1998-52 I.R.B. 32,
by providing rules under which the amount of ordinary and necessary
business expenses of an employee for lodging, meal, and incidental
expenses or for meal and incidental expenses incurred while traveling away
from home will be deemed substantiated under section 1.274-5T of the
temporary Income Tax Regulations when a payor (the employer, its agent, or
a third party) provides a per diem allowance under a reimbursement or
other expense allowance arrangement to pay for such expenses. This revenue
procedure also provides an optional method for employees and self-employed
individuals to use in computing the deductible costs of business meal and
incidental expenses paid or incurred while traveling away from home. Use
of a method described in this revenue procedure is not mandatory and a
taxpayer may use actual allowable expenses if the taxpayer maintains
adequate records or other sufficient evidence for proper substantiation.
This
revenue procedure does not provide rules under which the amount of an
employee's
lodging expenses will be deemed substantiated when a payor provides an
allowance to pay for those expenses but not meal and incidental expenses.
SECTION
2. BACKGROUND AND CHANGES
.01 Section 162(a) of the Internal Revenue Code allows a deduction
for
all
the ordinary and necessary expenses paid or incurred during the taxable
year in carrying on any trade or business. Under that provision, an
employee or self-employed individual may deduct expenses paid or incurred
while traveling away from home in pursuit of a trade or business. However,
under section 262, no portion of such travel expenses that is attributable
to personal, living, or family expenses is deductible.
.02 Section 274(n) generally limits the amount allowable as a
deduction under section 162 for any expense for food, beverages, or
entertainment to 50 percent of the amount of the expense that otherwise
would be allowable as a deduction. In the case of any expenses for food or
beverages consumed while away from home (within the meaning of section
162(a)(2)) by an individual during, or incident to, the period of duty
subject to the hours of service limitations of the Department of
Transportation, section 274(n)(3) gradually increases the deductible
percentage to 80 percent for taxable years beginning in 2008. For taxable
years beginning in 2000, the deductible percentage for these expenses is
60 percent.
.03 Section 274(d) provides, in part, that no deduction shall be
allowed under section 162 for any traveling expense (including meals and
lodging while away from home) unless the taxpayer complies with certain
substantiation requirements. The section further provides that regulations
may prescribe that some or all of the substantiation requirements do not
apply to an expense that does not exceed an amount prescribed by such
regulations.
.04 Section 1.274(d)-1T(a) of the regulations, in part, grants the
Commissioner the authority to prescribe rules relating to reimbursement
arrangements or per diem allowances for ordinary and necessary expenses
paid or incurred while traveling away from home. Pursuant to this grant of
authority, the Commissioner may prescribe rules under which such
arrangements or allowances, if in accordance with reasonable business
practice, will be regarded (1) as equivalent to substantiation, by
adequate records or other sufficient evidence, of the amount of such
travel expenses for purposes of section 1.274-5T(c), and (2) as satisfying
the requirements of an adequate accounting to the employer of the amount
of such travel expenses for purposes of section 1.274-5T(f).
.05 For purposes of determining adjusted gross income,
section62(a)(2)(A) allows an employee a deduction for expenses allowed by
Part VI(section 161 and following), subchapter B, chapter 1 of the Code,
paid orincurred by the employee in connection with the performance of
services asan employee under a reimbursement or other expense allowance
arrangementwith a payor.
.06 Section 62(c) provides that an arrangement will not be treated
as areimbursement or other expense allowance arrangement for purposes
ofsection 62(a)(2)(A) if it--
(1) does not require the employee to substantiate the expenses
coveredby the arrangement to the payor, or
(2) provides the employee with the right to retain any amount in
excessof the substantiated expenses covered under the arrangement.
Section 62(c) further provides that the substantiation
requirementsdescribed therein shall not apply to any expense to the extent
that, underthe grant of regulatory authority prescribed in section 274(d),
theCommissioner has provided that substantiation is not required for
suchexpense.
.07 Under section 1.62-2(c)(1) a reimbursement or other
expenseallowance arrangement satisfies the requirements of section 62(c)
if itmeets the requirements of business connection, substantiation,
andreturning amounts in excess of expenses as specified in the
regulations.Section 1.62-2T(e)(2) specifically provides that
substantiation of certainbusiness expenses in accordance with rules
prescribed under the authorityof section 1.274(d)-1T(a) or 1.274-5T(j)
will be treated as substantiationof the amount of such expenses for
purposes of section 1.62-2. Undersection 1.622(f)(2), the Commissioner may
prescribe rules under which anarrangement providing per diem allowances
will be treated as satisfyingthe requirement of returning amounts in
excess of expenses, even thoughthe arrangement does not require the
employee to return the portion ofsuch an allowance that relates to days of
travel substantiated and thatexceeds the amount of the employee's expenses
deemed substantiatedpursuant to rules prescribed under section 274(d),
provided the allowanceis reasonably calculated not to exceed the amount of
the employee'sexpenses or anticipated expenses and the employee is
required to returnany portion of such an allowance that relates to days of
travel notsubstantiated.
.08 Section 1.62-2(h)(2)(i)(B) provides that if a payor pays a per
diemallowance that meets the requirements of section 1.62-2(c)(1),
theportion, if any, of the allowance that relates to days of
travelsubstantiated in accordance with section 1.62-2(e), that exceeds
theamount of the employee's expenses deemed substantiated for such
travelpursuant to rules prescribed under section 274(d) and
section1.274(d)-1(a) or section 1.274-5T(j), and that the employee is
notrequired to return, is subject to withholding and payment of
employmenttaxes. See sections 31.3121(a)-3, 31.3231(e)-1(a)(5),
31.3306(b)-2, and31.3401(a)-4. Because the employee is not required to
return this excessportion, the reasonable period of time provisions of
section 1.62-2(g)(relating to the return of excess amounts) do not apply
to this portion.
.09 Under section 1.62-2(h)(2)(i)(B)(4), the Commissioner may, in
hisor her discretion, prescribe special rules regarding the timing
ofwithholding and payment of employment taxes on per diem allowances.
.10 Section 1.274-5T(j) grants the Commissioner the authority
toestablish a method under which a taxpayer may elect to use a
specifiedamount for meals paid or incurred while traveling away from home
in lieuof substantiating the actual cost of meals.
.11 Section 5.04 of this revenue procedure contains revisions to
thelist of high-cost localities and to the high-low rates for purposes
ofsection 5.
SECTION
3. DEFINITIONS
.01 PER DIEM ALLOWANCE. The term "per diem allowance"
means a paymentunder a reimbursement or other expense allowance
arrangement that meetsthe requirements specified in section 1.62-2(c)(1)
and that is
(1) paid with respect to ordinary and necessary business
expensesincurred, or which the payor reasonably anticipates will be
incurred, byan employee for lodging, meal, and incidental expenses or for
meal andincidental expenses for travel away from home in connection with
theperformance of services as an employee of the employer,
(2) reasonably calculated not to exceed the amount of the expenses
or
the
anticipated expenses, and
(3) paid at or below the applicable Federal per diem rate, a flat
rateor stated schedule, or in accordance with any other Service-specified
rateor schedule.
.02 FEDERAL PER DIEM RATE.
(1) GENERAL RULE. The Federal per diem rate is equal to the sum of
theFederal lodging expense rate and the Federal meal and incidental
expense(M&IE) rate for the locality of travel. Each of these rates for
aparticular locality in the continental United States ("CONUS")
is setforth in Appendix A of 41 C.F.R., Chapter 301, as amended. See 41
C.F.R.Part 3017 (1999), as amended, for specific rules regarding these
Federalrates. Each of these rates is established by the Secretary of
Defense fora particular nonforeign locality outside the continental United
States("OCONUS") (including Alaska, Hawaii, Puerto Rico, the
Northern MarianaIslands, and the possessions of the United States), and by
the Secretaryof State for a particular foreign OCONUS locality. Each of
these OCONUSrates is published in the Per Diem Supplement to the
StandardizedRegulations (Government Civilians, Foreign Areas). See, e.g.,
MaximumTravel Per Diem Allowances for Foreign Areas, PD Supplement 427,
issuedDecember 1, 1999.
(2) LOCALITY OF TRAVEL. The term "locality of travel"
means thelocality where an employee traveling away from home in connection
with theperformance of services as an employee of the employer stops for
sleep orrest.
(3) INCIDENTAL EXPENSES. The term "incidental expenses"
includes, butis not limited to, expenses for laundry, cleaning and
pressing ofclothing, and fees and tips for services, such as for porters
and baggagecarriers. The term "incidental expenses" does not
include taxicab fares,lodging taxes, or the costs of telegrams or
telephone calls.
.03 FLAT RATE OR STATED SCHEDULE.
(1) IN GENERAL. Except as provided in section 3.03(2) of this
revenueprocedure, an allowance is paid at a flat rate or stated schedule
if it isprovided on a uniform and objective basis with respect to the
expensesdescribed in section 3.01 of this revenue procedure. Such
allowance may bepaid with respect to the number of days away from home in
connection withthe performance of services as an employee or on any other
basis that isconsistently applied and in accordance with reasonable
business practice.Thus, for example, an hourly payment to cover meal and
incidental expensespaid to a pilot or flight attendant who is traveling
away from home inconnection with the performance of services as an
employee is an allowancepaid at a flat rate or stated schedule. Likewise,
a payment based on thenumber of miles traveled (e.g., cents per mile) to
cover meal andincidental expenses paid to an over-the-road truck driver
who is travelingaway from home in connection with the performance of
services as anemployee is an allowance paid at a flat rate or stated
schedule.
(2) LIMITATION. For purposes of this revenue procedure, an
allowancethat is computed on a basis similar to that used in computing
theemployee's wages or other compensation (e.g., the number of hours
worked,miles traveled, or pieces produced) does not meet the business
connectionrequirement of section 1.62-2(d), is not a per diem allowance,
and is notpaid at a flat rate or stated schedule, unless, as of December
12, 1989,(a) the allowance was identified by the payor either by making a
separatepayment or by specifically identifying the amount of the
allowance, or (b)an allowance computed on that basis was commonly used in
the industry inwhich the employee is employed. See section
1.62-2(d)(3)(ii).
SECTION
4. PER DIEM SUBSTANTIATION METHOD
.01 PER DIEM ALLOWANCE. If a payor pays a per diem allowance in
lieu ofreimbursing actual expenses for lodging, meal, and incidental
expensesincurred or to be incurred by an employee for travel away from
home, theamount of the expenses that is deemed substantiated for each
calendar dayis equal to the lesser of the per diem allowance for such day
or theamount computed at the Federal per diem rate for the locality of
travelfor such day (or partial day, see section 6.04 of this revenue
procedure).
.02 MEALS ONLY PER DIEM ALLOWANCE. If a payor pays a per diem
allowanceonly for meal and incidental expenses in lieu of reimbursing
actualexpenses for meal and incidental expenses incurred or to be incurred
by anemployee for travel away from home, the amount of the expenses that
isdeemed substantiated for each calendar day is equal to the lesser of
theper diem allowance for such day or the amount computed at the Federal
M&IErate for the locality of travel for such day (or partial day, see
section6.04 of this revenue procedure). A per diem allowance is treated as
paidonly for meal and incidental expenses if (1) the payor pays the
employeefor actual expenses for lodging based on receipts submitted to the
payor,(2) the payor provides the lodging in kind, (3) the payor pays the
actualexpenses for lodging directly to the provider of the lodging, (4)
thepayor does not have a reasonable belief that lodging expenses were or
willbe incurred by the employee, or (5) the allowance is computed on a
basissimilar to that used in computing the employee's wages or
othercompensation (e.g., the number of hours worked, miles traveled, or
piecesproduced).
.03 OPTIONAL METHOD FOR MEALS ONLY DEDUCTION. In lieu of using
actualexpenses, employees and self-employed individuals, in computing the
amountallowable as a deduction for ordinary and necessary meal and
incidentalexpenses paid or incurred for travel away from home, may use an
amountcomputed at the Federal M&IE rate for the locality of travel for
eachcalendar day (or partial day, see section 6.04 of this revenue
procedure)the employee or self-employed individual is away from home. Such
amountwill be deemed substantiated for purposes of paragraphs (b)(2) (travelaway
from home) and (c) of section 1.274-5T, provided the employee orself-employed
individual substantiates the elements of time, place, andbusiness purpose
of the travel expenses in accordance with thoseregulations.
.04 SPECIAL RULES FOR TRANSPORTATION INDUSTRY.
(1) IN GENERAL. This section 4.04 applies to (a) a payor that pays
aper diem allowance only for meal and incidental expenses for travel
awayfrom home as described in section 4.02 of this revenue procedure to
anemployee in the transportation industry, or (b) an employee orself-employed
individual in the transportation industry who computes theamount allowable
as a deduction for meal and incidental expenses fortravel away from home
in accordance with section 4.03 of this revenueprocedure.
(2) RATES. A taxpayer described in section 4.04(1) of this
revenueprocedure may treat $38 as the Federal M&IE rate for any
locality oftravel in CONUS, and/or $42 as the Federal M&IE rate for
any locality oftravel OCONUS. A payor that uses either (or both) of these
special rateswith respect to an employee must use the special rate(s) for
all amountssubject to section 4.02 of this revenue procedure paid to that
employeefor travel away from home within CONUS and/or OCONUS, as the case
may be,during the calendar year. Similarly, an employee or self-employedindividual
that uses either (or both) of these special rates must use thespecial
rate(s) for all amounts computed pursuant to section 4.03 of thisrevenue
procedure for travel away from home within CONUS and/or OCONUS, asthe case
may be, during the calendar year.
(3) PERIODIC RULE. A payor described in section 4.04(1) of this
revenueprocedure may compute the amount of the employee's expenses that is
deemedsubstantiated under section 4.02 of this revenue procedure
periodically(not less frequently than monthly), rather than daily, by
comparing thetotal per diem allowance paid for the period to the sum of
the amountscomputed at the Federal M&IE rate(s) for the localities of
travel for thedays (or partial days, see section 6.04 of this revenue
procedure) theemployee is away from home during the period. For example,
assume anemployee in the transportation industry travels away from home
withinCONUS on 17 days (including partial days, see section 6.04 of this
revenueprocedure) during a calendar month and receives a per diem
allowance onlyfor meal and incidental expenses from a payor that uses the
special ruleunder section 4.04(2) of this revenue procedure. The amount
deemedsubstantiated under section 4.02 of this revenue procedure is equal
to thelesser of the total per diem allowance paid for the month or $646
(17 daysat $38 per day).
(4) TRANSPORTATION INDUSTRY DEFINED. For purposes of this section
4.04of this revenue procedure, an employee or self-employed individual is
"inthe transportation industry" only if the employee's or
individual's work(a) is of the type that directly involves moving people
or goods byairplane, barge, bus, ship, train, or truck, and (b) regularly
requirestravel away from home which, during any single trip away from
home,usually involves travel to localities with differing Federal M&IE
rates.For purposes of the preceding sentence, a payor must determine that
anemployee or a group of employees is "in the transportation
industry" byusing a method that is consistently applied and in
accordance withreasonable business practice.
<<END
RULING>>
SECTION
5. HIGH-LOW SUBSTANTIATION METHOD
.01 GENERAL RULE. If a payor pays a per diem allowance in lieu
ofreimbursing actual expenses for lodging, meal, and incidental
expensesincurred or to be incurred by an employee for travel away from
home andthe payor uses the high-low substantiation method described in
thissection 5 for travel within CONUS, the amount of the expenses that
isdeemed substantiated for each calendar day is equal to the lesser of
theper diem allowance for such day or the amount computed at the rate
setforth in section 5.02 of this revenue procedure for the locality of
travelfor such day (or partial day, see section 6.04 of this revenue
procedure).This high-low substantiation method be used in lieu of the per
diemsubstantiation method provided in section 4.01 of this revenue
procedure,but may not be used in lieu of the meals only substantiation
methodprovided in section 4.02 or 4.03 of this revenue procedure.
.02 SPECIFIC HIGH-LOW RATES. The per diem rate set forth in this
section
5.02 is $201 for travel to any "high-cost locality" specified
insection 5.03 of this revenue procedure, or $124 for travel to any
otherlocality within CONUS. Whichever per diem rate applies, it is applied
asif it were the Federal per diem rate for the locality of travel.
Forpurposes of applying the high-low substantiation method and the
section274(n) limitation on meal expenses (see section 6.05 of this
revenueprocedure), the Federal M&IE rate shall be treated as $42 for a
high-costlocality and $34 for any other locality within CONUS.
.03 HIGH-COST LOCALITIES. The following localities have a Federal
perdiem rate of $163 or more for all or part Of the calendar year, and
arehigh-cost localities for all of the calendar year or the portion of
thecalendar year specified in parenthesis under the key city name:
Key
city
County or other defined location
--------
--------------------------------
CALIFORNIA
San
Francisco
San Francisco
Sunnyvale/Palo
Alto/San Jose Santa
Clara
Tahoe
City
Placer
COLORADO
Aspen
Pitkin
(December 1-June 30)
Silverthorne/Keystone
Summit
Telluride
San Miguel
(November 1-March 31)
Vail
Eagle
(December 1-March 31)
DISTRICT
OF COLUMBIA
Washington,
D.C.
Washington, D.C.; the cities of
Alexandria, Fairfax, and Falls Church,
and the counties of Arlington,
Fairfax, and Loudoun, in Virginia; and
the counties of
Montgomery and Prince
George's in Maryland
FLORIDA
Key
West
Monroe
(December 15-April 30)
IDAHO
Sun
Valley
City limits of Sun Valley
(June 1-September 30)
ILLINOIS
Chicago
Cook and Lake
MARYLAND
(For
the counties of
Montgomery and Prince
George's, see District of
Columbia)
Ocean
City
Worcester
(June 1-September 15)
MASSACHUSETTS
Boston
Suffolk
Cambridge
Middlesex County (except Lowell)
Martha's
Vineyard
Dukes
(June 1-September 30)
MICHIGAN
Charlevoix
Charlevoix
(July 1-September 30)
Mackinac
Island
Mackinac
MONTANA
Big
Sky
Gallatin (except West Yellowstone Park)
NEW
JERSEY
Cape
May
Cape May (except Ocean City)
(June 1-September 30)
Ocean
City
City limits of Ocean City
(June 15-September 15)
Piscataway/Bellemead
Somerset and Middlesex
Princeton
City limits of Princeton
Union
County
Union County
NEW
YORK
The
Bronx/Brooklyn/Queens
The boroughs of The Bronx, Brooklyn,
and Queens
Manhattan
Manhattan
Nassau
County/Great Neck
Nassau County
Suffolk
County
Suffolk County
White
Plains
City limits of White Plains
PENNSYLVANIA
Hershey
City limits of Hershey
(June 1-September 15)
Philadelphia
Philadelphia
UTAH
Park
City
Summit
(December 20-March 31)
VIRGINIA
(For
the cities of
Alexandria, Fairfax, and
Falls Church, and the
counties of Arlington,
Fairfax, and Loudoun, see
District of Columbia)
.04 CHANGES IN HIGH-COST LOCALITIES. The list of high-cost
localitiesin section 5.03 of this revenue procedure differs from the list
ofhigh-cost localities in section 5.03 of Rev. Proc. 98-64.
(1) The following localities (generally listed by key cities) have
beenadded to the list of high-cost localities: Santa Clara County,
California;Tahoe City, California; Silverthome/Keystone, Colorado; Prince
George'sCounty, Maryland; Middlesex County, Massachusetts (except the city
limitsof Lowell); Big Sky, Montana; Bellemead, New Jersey; Middlesex
County, NewJersey; Princeton, New Jersey; Nassau County/Great Neck, New
York; SuffolkCounty, New York; and Loudoun County, Virginia.
(2) The portion of the year for which the following are high-costlocalities
(listed by key cities) has been changed: Aspen, Colorado; Vail,Colorado;
Key West, Florida; Sun Valley, Idaho, Ocean City, Maryland;Ocean City, New
Jersey; Hershey, Pennsylvania; and Park City, Utah.
(3) The following localities (generally listed by key cities) have
beenremoved from the list of high-cost localities: Gulf Shores,
Alabama;Gualala, California; Yosemite National Park, California; Delray
Beach,Florida; Jupiter, Florida; Palm Beach, Florida; Singer Island,
Florida;Bar Harbor, Maine; Baltimore, Maryland; Stateline, Nevada;
SaratogaSprings, New York; Westchester County, New York (except the city
limits ofWhite Plains); West Point, New York; Kill Devil Hills, North
Carolina;Bala Cynwyd, Pennsylvania; Newport, Rhode Island; Hilton Head,
SouthCarolina; Myrtle Beach, South Carolina; Wintergreen, Virginia;
andSeattle, Washington.
.05 SPECIFIC LIMITATION.
(1) Except as provided in section 5.05(2) of this revenue
procedure, apayor that uses the high-low substantiation method with
respect to anemployee must use that method for all amounts paid to that
employee fortravel away from home within CONUS during the calendar year.
(2) With respect to an employee described in section 5.05(1) of
thisrevenue procedure, the payor may reimburse actual expenses or use
themeals only per diem method described in section 4.02 of this
revenueprocedure for any travel away from home, and may use the per
diemsubstantiation method described in section 4.01 of this revenue
procedurefor any OCONUS travel away from home.
SECTION
6. LIMITATIONS AND SPECIAL RULES
.01 IN GENERAL. The Federal per diem rate and the Federal M&IE
ratedescribed in section 3.02 of this revenue procedure for the locality
oftravel will be applied in the same manner as applied under the
FederalTravel Regulations, 41 C.F.R. Part 301-7 (1999), except as provided
insections 6.02 through 6.04 of this revenue procedure.
.02 FEDERAL PER DIEM RATE. A receipt for lodging expenses is
notrequired in determining the amount of expenses deemed substantiated
undersection 4.01 or 5.01 of this revenue procedure. See section 7.01 of
thisrevenue procedure for the requirement that the employee substantiate
thetime, place, and business purpose of the expense.
.03 FEDERAL PER DIEM OR M&IE RATE. A payor is not required to
reducethe Federal per diem rate or the Federal M&IE rate for the
locality oftravel for meals provided in kind, provided the payor has a
reasonablebelief that meal and incidental expenses were or will be
incurred by theemployee.
.04 PRORATION OF THE FEDERAL PER DIEM OR M&IE RATE. Pursuant to
theFederal Travel Regulations, in determining the Federal per diem rate
orthe Federal M&IE rate for the locality of travel, the full
applicableFederal M&IE rate is available for, a full day of travel
from 12:01 a.m.to 12:00 midnight. For purposes of determining the amount
deemedsubstantiated under section 4 or 5 of this revenue procedure with
respectto partial days of travel away from home, either of the following
methodsmay be used to prorate the Federal M&IE rate to determine the
Federal perdiem rate or the Federal M&IE rate for the partial days of
travel:
(1) Such rate may be prorated using the method prescribed by
theFederal Travel Regulations. Currently the Federal Travel Regulations
allowthree-fourths of the applicable Federal M&IE rate for each
partial dayduring which the employee or self-employed individual is
traveling awayfrom home in connection with the performance of services as
an employee orself-employed individual; or
(2) Such rate may be prorated using any method that is
consistentlyapplied and in accordance with reasonable business practice.
For example,if an employee travels away from home from 9 a.m. one day to 5
p.m. thenext day, a method of proration that results in an amount equal to
2 timesthe Federal M&IE rate will be treated as being in accordance
withreasonable business practice (even though only times the Federal
M&IE ratewould be allowed under the Federal Travel Regulations).
.05 APPLICATION OF THE APPROPRIATE SECTION 274(n) LIMITATION ON
MEALEXPENSES. All or part of the amount of an expense deemed
substantiatedunder this revenue procedure is subject to the appropriate
limitationunder section 274(n) (see section 2.02 of this revenue
procedure) on thedeductibility of food and beverage expenses.
(1) When an amount for meal and incidental expenses is
computedpursuant to section 4.03 of this revenue procedure, the taxpayer
musttreat such amount as an expense for food and beverages.
(2) When a per diem allowance is paid only for meal and
incidentalexpenses, the payor must treat an amount equal to the lesser of
theallowance or the Federal M&IE rate for the locality of travel for
such day(or partial day, see section 6.04 of this revenue procedure) as an
expensefor food and beverages.
(3) When a per diem allowance is paid for lodging, meal, and
incidentalexpenses, the payor must treat an amount equal to the Federal
M&IE ratefor the locality of travel for each calendar day (or partial
day, seesection 6.04 of this revenue procedure) the employee is away from
home asan expense for food and beverages. For purposes of the preceding
sentence,when a per diem allowance for lodging, meal, and incidental
expenses ispaid at a rate that is less than the Federal per diem rate for
thelocality of travel for such day (or partial day, see section 6.04 of
thisrevenue procedure), the payor may treat an amount equal to 40 percent
ofsuch allowance as the Federal M&IE rate for the locality of travel
forsuch day (or partial day, see section 6.04 of this revenue procedure).
.06 NO DOUBLE REIMBURSEMENT OR DEDUCTION. If a payor pays a per
diemallowance in lieu of reimbursing actual expenses for lodging, meal,
andincidental expenses or for meal and incidental expenses in accordance
withsection 4 or 5 of this revenue procedure, any additional payment
withrespect to such expenses is treated as paid under a nonaccountable
plan,is included in the employee's gross income, is reported as wages or
othercompensation on the employee's Form W-2, and is subject to
withholding andpayment of employment taxes. Similarly, if an employee or
self-employedindividual computes the amount allowable as a deduction for
meal andincidental expenses for travel away from home in accordance with
section4.03 or 4.04 of this revenue procedure, no other deduction is
allowed tothe employee or self-employed individual with respect to such
expenses.For example, assume an employee receives a per diem allowance
from a payorfor lodging, meal, and incidental expenses or for meal and
incidentalexpenses incurred while traveling away from home. During that
trip, theemployee pays for dinner for the employee and two business
associates. Thepayor reimburses as a business entertainment meal expense
the meal expensefor the employee and the two business associates. Because
the payor alsopays a per diem allowance to cover the cost of the
employee's meals, theamount paid by the payor for the employee's portion
of the businessentertainment meal expense is treated as paid under a
nonaccountable plan,is reported as wages or other compensation on the
employee's Form W-2, andis subject to withholding and payment of
employment taxes.
.07 RELATED PARTIES. Sections 4.01, 4.02, 4.04 (to the extent
itrelates to section 4.02), and 5 of this revenue procedure will not
applyin any case in which a payor and an employee are related within
themeaning of section 267(b), but for this purpose the percentage
ofownership interest referred to in section 267(b)(2) shall be 10 percent.
SECTION
7. APPLICATION
.01 If the amount of travel expenses is deemed substantiated under
therules provided in section 4 or 5 of this revenue procedure, and
theemployee actually substantiates to the payor the elements of time,
place,and business purpose of the travel expenses in accordance with
paragraphs(b)(2) (travel away from home) and (c) (other than
subparagraph(2)(iii)(A) thereof) of section 1.274-5T, the employee is
deemed tosatisfy the adequate accounting requirements of section
1.274-5T(f) aswell as the requirement to substantiate by adequate records
or othersufficient evidence for purposes of section 1.274-5T(c). See
section1.62-2(e)(1) for the rule that an arrangement must require
businessexpenses to be substantiated to the payor within a reasonable
period oftime.
.02 An arrangement providing per diem allowances will be treated
assatisfying the requirement of section 1.62-2(f)(2) with respect
toreturning amounts in excess of expenses if the employee is required
toreturn within a reasonable period of time (as defined in
section1.62-2(g)) any portion of such an allowance that relates to days of
travelnot substantiated, even though the arrangement does not require
theemployee to return the portion of such an allowance that relates to
daysof travel substantiated and that exceeds the amount of the
employee'sexpenses deemed substantiated. For example, assume a payor
provides anemployee an advance per diem allowance for meal and incidental
expenses of$200, based on an anticipated 5 days of business travel at $40
per day toa locality for which the Federal M&IE rate is $34, and the
employeesubstantiates, 3 full days of business travel. The requirement to
returnexcess amounts will be treated as satisfied if the employee is
required toreturn within a reasonable period of time (as defined in
section1.62-2(g)) the portion of the allowance that is attributable to the
2unsubstantiated days of travel ($80), even though the employee is
notrequired to return the portion of the allowance ($18) that exceeds
theamount of the employee's expenses deemed substantiated under section
4.02of this revenue procedure ($102) for the 3 substantiated days of
travel.However, the $18 excess portion of the allowance is treated as paid
undera nonaccountable plan as discussed in section 7.04 of this
revenueprocedure.
.03 An employee is not required to include in gross income the
portionof a per diem allowance received from a payor that is less than or
equalto the amount deemed substantiated under the rules provided in
section 4or 5 of this revenue procedure if the employee substantiates the
businesstravel expenses covered by the per diem allowance in accordance
withsection 7.01 of this revenue procedure. See section 1.274-5T(f)(2)(i).
Inaddition, such portion of the allowance is treated as paid under
anaccountable plan, is not reported as wages or other compensation on
theemployee's Form W-2, and is exempt from the withholding and payment
ofemployment taxes. See section 1.62-2(c)(2) and (c)(4).
.04 An employee is required to include in gross income only the
portionof the per diem allowance received from a payor that exceeds the
amountdeemed substantiated under the rules provided in section 4 or 5 of
thisrevenue procedure if the employee substantiates the business
travelexpenses covered by the per diem allowance in accordance with
section 7.01of this revenue procedure. See section 1.274-5T(f)(2)(ii). In
addition,the excess portion of the allowance is treated as paid under
anonaccountable plan, is reported as wages or other compensation on
theemployee's Form W-2, and is subject to withholding and payment
ofemployment taxes. See section 1.62-2(c)(3)(ii), (c)(5), and (h)(2)(i)(B).
.05 If the amount of the expenses that is deemed substantiated
underthe rules provided in section 4.01, 4.02, or 5 of this revenue
procedureis less than the amount of the employee's business expenses for
travelaway from home, the employee may claim an itemized deduction for
theamount by which the business travel expenses exceed the amount that
isdeemed substantiated, provided the employee substantiates all the
businesstravel expenses, includes on Form 2106, Employee Business
Expenses, thedeemed substantiated portion of the per diem allowance
received from thepayor, and includes in gross income the portion (if any)
of the per diemallowance received from the payor that exceeds the amount
deemedsubstantiated. See section 1.274-5T(f)(2)(iii). However, for
purposes ofclaiming this itemized deduction with respect to meal and
incidentalexpenses, substantiation of the amount of the expenses is not
required ifthe employee is claiming a deduction that is equal to or less
than theamount computed under section 4.03 of this revenue procedure minus
theamount deemed substantiated under sections 4.02 and 7.01 of this
revenueprocedure. The itemized deduction is subject to the appropriate
limitation(see section 2.02 of this revenue procedure) on meal and
entertainmentexpenses provided in section 274(n) and the 2-percent floor
onmiscellaneous itemized deductions provided in section 67.
.06 An employee who does not receive a per diem allowance for meal
andincidental expenses may deduct an amount computed pursuant to section
4.03of this revenue procedure only as an itemized deduction. This
itemizeddeduction is subject to the appropriate limitation (see section
2.02 ofthis revenue procedure) on meal and entertainment expenses provided
insection 274(n) and the 2-percent floor on miscellaneous
itemizeddeductions provided in section 67.
.07 A self-employed individual may deduct an amount computed
pursuantto section 4.03 of this revenue procedure in determining adjusted
grossincome under section 62(a)(1). This deduction is subject to
theappropriate limitation (see section 2.02 of this revenue procedure)
onmeal and entertainment expenses provided in section 274(n).
.08 If a payor's reimbursement or other expense allowance
arrangementevidences a pattern of abuse of the rules of section 62(c) and
theregulations thereunder, all payments under the arrangement will be
treatedas made under a nonaccountable plan. Thus, such payments are
included inthe employee's gross income, are reported as wages or other
compensationon the employee's Form W-2, and are subject to withholding and
payment ofemployment taxes. See section 1.62-2(c)(3), (c)(5), and (h)(2).
SECTION
8. WITHHOLDING AND PAYMENT OF EMPLOYMENT TAXES.
.01 The portion of a per diem allowance, if any, that relates to
thedays of business travel substantiated and that exceeds the amount
deemedsubstantiated for those days under section 4.01, 4.02, or 5 of
thisrevenue procedure is subject to withholding and payment of
employmenttaxes. See section 1.62-2(h)(2)(i)(B).
.02 In the case of a per diem allowance paid as a reimbursement,
theexcess described in section 8.01 of this revenue procedure is subject
towithholding and payment of employment taxes in the payroll period in
whichthe payor reimburses the expenses for the days of travel
substantiated.See section 1.62-2(h)(2)(i)(B)(2).
.03 In the case of a per diem allowance paid as an advance, the
excessdescribed in section 8.01 of this revenue procedure is subject
towithholding payment of employment taxes no later than the first
payrollperiod following the payroll period in which the days of travel
withrespect to which the advance was paid are substantiated. See
section1.622(h)(2)(i)(B)(3). If some or all of the days of travel with
respect towhich the advance was paid are not substantiated within a
reasonableperiod of time and the employee does not return the portion of
theallowance that relates to those days within a reasonable period of
time,the portion of the allowance that relates to those days is subject
towithholding and payment of employment taxes no later than the
firstpayroll period following the end of the reasonable period. See
section1.62-2(h)(2)(i)(A).
.04 In the case of a per diem allowance only for meal and
incidentalexpenses for travel away from home paid to an employee in
thetransportation industry by a payor that uses the rule in section
4.04(3)of this revenue procedure, the excess of the per diem allowance
paid forthe period over the amount deemed substantiated for the period
undersection 4.02 of this revenue procedure (after applying section
4.04(3) ofthis revenue procedure), is subject to withholding and payment
ofemployment taxes no later than the first payroll period following
thepayroll period in which the excess is computed. See
section1.62-2(h)(2)(i)(B)(4).
.05 For example, assume that an employer pays an employee a per
diemallowance to cover business expenses for meals and lodging for travel
awayfrom home at a rate of 120 percent of the Federal per diem rate for
thelocalities to which the employee travels. The employer does not
requirethe employee to return the 20 percent by which the reimbursement
for thoseexpenses exceeds the Federal per diem rate. The employee
substantiates 6days of travel away from home: 2 days in a locality in
which the. Federalper diem rate is $100 and 4 days in a locality in which
the Federal perdiem rate is $125. The employer reimburses the employee
$840 for the 6days of travel away from home (2 x (120% x $100) + 4 x (120%
x $125)), anddoes not require the employee to return the excess payment of
$140 (2 daysx $20 ($120 - $100) + 4 days x $25 ($150 - $125)). For the
payroll periodin which the employer reimburses the expenses, the employer
must withholdand pay employment taxes on $140. See section 8.02 of this
revenueprocedure.
SECTION
9. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 98-64 is hereby superseded for per diem allowances that
arepaid both (1) to an employee on or after January 1, 2000, and (2)
withrespect to lodging, meal, and incidental expenses or with respect to
mealand incidental expenses paid or incurred for travel while away from
homeon or after January 1, 2000. Rev. Proc. 98-64 is also hereby
supersededfor purposes of computing the amount allowable as a deduction
for meal andincidental expenses paid or incurred by an employee or self-employedindividual
for travel while away from home on or after January 1, 2000.
RAFTING
INFORMATION
The principal author of this revenue procedure is Edwin B.
Cleverdon ofthe Office of Assistant Chief Counsel (Income Tax and
Accounting). Forfurther information regarding this revenue procedure,
contact Mr.Cleverdon at (202) 622-4920 (not a toll-free call).
<<END RULING>>
Start of Revenue Procedures Section
Start of Private Letter Rulings
Tax Killers
This is about Activity Based Taxplanning - maximizing deductions, minimizing cash outlay and maximizing the amount of cash retained and the net worth. Activity Based Taxplanning (ABT) is a methodology developed by Bob Parrish CPA, that assists people with the tax issues by focusing on the activity (or actions - events) that are being undertaken or contemplated (or have already taken place). The, research is compiled from the myriad of sources to help you complete the activity with the least tax cost, while maintaining compliance the tax laws, other laws and regulations and place yourself in a position to protect your objectives.
Tax is a subject that many view in order to cut costs. Taxes are a cost just as any other cost. It happens this cost is somewhat intangible and is defined by legislation without a tangible item to view and control. The money is spent and the control of the expenditure is more appropriately administered by someone trained in the law.
Cost Killers
Management Info Sys, Decision Support Systems, Activity Based Management and Costing, Cost Accounting)
Prepare for Your Adviser CPA or Attorney (or inform yourself about this topic)
Entrance Interview
From Your Other Business, or Financial Records
From Corporation or Organization Records (meetings, etc.)
About the Preparation Procedures
If you have decided this task must be done, the first procedure is to be certain you have all the facts important to this topic. So that you may know the value, to you personally, of this topic you must have facts of your circumstances. So that you may comply with applicable rules, you must have all the facts. Factual research is time consuming and if not performed wisely will be very expensive if not performed properly, and thoroughly. IF you decide to make this a do-it-yourself project you should seek the advice of a professional qualified in your jurisdiction to assist you with defining important information and then to overview the information you have gathered.
What to gather - an Organizer and Prepare for your CPA, Attorney or Financial Adviser
Organizer
From Your Other Business, or Financial Records
From Corporation Records or Organization Records (meetings, etc.)
Start of Preparing For You CPA Section
Prepare Yourself - Become Knowledgeable About Forms, Checklists, Etc.
INFORM
YOURSELF
Action
Checklist - What To Do
How to do this - What to Do: Seek assistance from Bob Parrish, as requirements change from time to time and circumstance to circumstance.
GENERAL SETUP & STARTUP
PRINT FORMS AND DOCUMENTS NEEDED
PRESENTATION STANDARDS
Financial Accounting - Bookkeeping and Financial Statements
Financial Statement Presentation
Notes to Financial Statements
How to Make Entries
What Kind of Records to Keep
Bookkeeping Methods - Cash, Accrual and Other
How the Business Entity Affects the Recording
Financial Statement Presentation
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Back to Start of Financial Accounting: Bookkeeping & Financials
Bookkeeping Methods - Cash, Accrual and Other
Back to Start of Financial Accounting: Bookkeeping & Financials
How the Business Entity Affects the Recording
Sole Proprietor
Corporation - C & S
Partnerships - General, Limited, Limited Liability Company, Registered Limited Liability Partnership or Company
Trusts
Tax Exempt
Back to Start of Financial Accounting: Bookkeeping & Financials
Compliance Requirements
Compliance Checklist
Back to Start of What is required for protection, defense, etc.
Alerts and Dangers
Action Checklist
Alerts & Dangers - Risks
Asset Protection
Your Defense
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Back to Start of Alerts & Dangers
Tools - Spreadsheets - Documents - Checklists - Organizers
TOOLS
Spreadsheets &
Math
Spreadsheets & Computations
Back to Start of Spreadsheets & Math
Sample Forms
Consult with your adviser - call, write, email or drop by to seek the advice of Bob Parrish CPA. If you are not a current client, then Bob Parrish CPA PC can furnish a second opinion or can be your primary adviser. This entire site is for educational or informational purposes only. The materials are not opinions, advise, legal advice on any matter and have not been tailored to specific jurisdictions, individuals, other entities, or circumstances. You are not to use the forms, concepts, strategies, or knowledge without assistance from a professional. You must update and validate this information yourself with your own research, experience and the advice of a competent professional adviser in your jurisdiction.
Back to Start of Contracts, Trusts, etc.
Required Reports
Back to Start of Reports Required
Checklist for Deployment
Checklists for Deployment
Back to Start of Checklists - Deployment
Checklist for Monitoring
Back to Start of Checklist - Monitoring
Index
Click on the text -- (a) to expand or collapse the outline if the text has no underline OR (b) to jump to the topic if the text has an underline
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Analyses
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Plain English Analysis - Your Answers
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How To Do This
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Increase Wealth
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Inform Yourself
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Information Sources
-
Introduction
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Procedures
-
Tools
Contact Information
