Per-diem method clarified in light of TCJA changes

By Sally P. Schreiber, J.D.

The IRS on Tuesday updated the rules for using per-diem rates to substantiate the amount of ordinary and necessary business expenses paid or incurred while traveling away from home in light of changes enacted by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 (Rev. Proc. 2019-48). The revenue procedure supersedes and modifies the rules that applied to the per-diem method under Rev. Proc. 2011-47. Taxpayers are not required to use the method described in the revenue procedure and may instead substantiate actual allowable expenses, provided they maintain adequate records to support the deductions.

The new revenue procedure does not contain the per-diem rates for the current fiscal year. Those were published in Notice 2019-55, which contains the rates that are in effect from Oct. 1, 2019, to Sept. 30, 2020.

The TCJA suspended the miscellaneous itemized deduction that employees could take for nonreimbursed business expenses, but self-employed individuals and certain employees, such as armed forces reservists, fee-basis state or local government officials, eligible educators, and qualified performing artists, who deduct unreimbursed expenses for travel away from home may still use per-diem rates for meals and incidental expenses, or incidental expenses only.

The IRS explains in the revenue procedure that the TCJA amended prior rules to disallow a deduction for expenses for entertainment, amusement, or recreation paid or incurred after Dec. 31, 2017. Otherwise allowable meal expenses remain deductible if the food and beverages are purchased separately from the entertainment, or if the cost of the food and beverages is stated separately from the cost of the entertainment in the invoice or bill.

The new revenue procedure is effective for per-diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only that are paid to an employee on or after Nov. 26, 2019, for travel away from home on or after Nov. 26, 2019.

Sally P. Schreiber, J.D., (Sally.Schreiber@aicpa-cima.com) is a Tax Adviser senior editor.

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