Compliance October 4, 2011

IRS Publishes Rules on Business Expenses

October 4, 2011 (PLANSPONSOR.com) – The Internal Revenue Service has issued Revenue Procedure 2011-47 which provides rules for employees, volunteers, and partners who are reimbursed for lodging, meals, and incidental expenses, or meals and incidental expenses only, while traveling away from home.
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This revenue procedure updates Rev. Proc. 2010-39, 2010-42 I.R.B. 459, and provides rules for using a per diem rate to substantiate, under § 274(d) of the Internal Revenue Code and ‘ 1.274-5 of the Income Tax Regulations, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. Taxpayers are not required to use a method described in the revenue procedure, but may substantiate actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence.  

Employees and self-employed individuals that deduct unreimbursed expenses for travel away from home may use a per diem rate for meals and incidental expenses, or incidental expenses only, under this revenue procedure. This revenue procedure does not provide rules for using a per diem rate to substantiate the amount of lodging expenses only.  

The special per diem rates are now published in a separate annual notice which provides the special transportation industry meal and incidental expenses rates (M&IE rates), the rate for the incidental expenses only deduction, and the rates and list of high-cost localities for purposes of the high-low substantiation method. The service plans to discontinue publishing this revenue procedure annually but will publish modifications as required.  

The federal per diem rate is equal to the sum of the applicable federal lodging expense rate and the applicable federal M&IE rate for the day and locality of travel.  

The General Services Administration (GSA) rates for localities within the continental U.S. are available at http://www.gsa.gov.  Rates for localities outside the continental U.S. are at http://www.defensetravel.dod.mil and http://www.state.gov.   

In addition, Notice 2011-81 provides the 2011-2012 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home.  

Revenue Procedure 2011-47 is available at http://www.irs.gov/pub/irs-drop/rp-11-47.pdf. 

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