IRS Updates Rules for Substantiating Travel Expenses

By Alistair M. Nevius, J.D.

On September 27, 2007, the Service issued Rev. Proc. 2007-63, which updates the rules for substantiating an employee’s travel expenses using reimbursement arrangements, per diem allowances, or the high-low method.

The revenue procedure provides rules under which the amount of an employee’s ordinary and necessary business expenses for lodging, meals, and incidental expenses, or for meals and incidental expenses, incurred while traveling away from home is deemed substantiated under Regs. Sec. 1.274-5 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 the expenses. The revenue procedure also provides an optional method for employees and self-employed individuals who are not reimbursed to compute the deductible costs paid or incurred for business meals and incidental expenses, or for incidental expenses only if no meal costs are paid or incurred, while traveling away from home.

Use of the methods described in the revenue procedure is not mandatory; taxpayers may use actual allowable expenses if they maintain adequate records or other sufficient evidence for proper substantiation.

Rev. Proc. 2007-63 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 lodging expenses only and not meal and incidental expenses.

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