Rev. Rul. 79-16

ISSUE

What travel expenses are deductible for federal income tax purposes by a state legislator who makes an election under section 604 of the Tax Reform Act of 1976, Pub. L. 94-455, 1976-3 C.B. (Vol. 1) 1, 51, as amended, to have the legislator's place of residence within the legislative district that the legislator represents considered as the individual's tax home?

FACTS

B is a state legislator who makes an election under section 604 of the Tax Reform Act of 1976, as amended, to have the legislator's place of residence in the district represented considered as the legislator's tax home. B's place of residence and the state capital where the legislative sessions are held are in different cities. When the state legislature is not in session, the legislator incurs other travel expenses in the pursuit of trade or business as a legislator for travel in the district represented, in the state capital, and in other cities. The legislator does not receive a per diem allowance for attending legislative sessions.

LAW AND ANALYSIS

Section 162(a) of the Internal Revenue Code of 1954 provides that a taxpayer is allowed a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including traveling expenses (including amounts expended for meals and lodging other than amounts that are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business.

Generally, in order for a taxpayer to deduct travel expenses under section 162(a) of the Code, the taxpayer must be away from home on business overnight or for a period sufficient to require substantial sleep or rest. United States v. Correll, 389 U.S. 299 (1967), [Ct. D. 1917] 1968-1 C.B. 64; Rev. Rul. 75-168, 1975-1 C.B. 58.

Section 604 of the Tax Reform Act of 1976, 1976-3, C.B. (Vol. 1) 1, 51, is entitled "State Legislators' Travel Expenses Away from Home" and deals expressly with the travel expenses of state legislators. As amended by the Act of April 7, 1978, Pub. L. No. 95-258, 95th Cong., 2d Sess. (1978), 1978-1 C.B. 505, section 604 provides that for purposes of section 162(a) of the Code, in the case of an individual who was a state legislator at any time during any taxable year beginning before January 1, 1978, and who elects the application of section 604, for any period during such a taxable year in which the individual was a state legislator, the place of residence of such individual within the legislative district that the legislator represented shall be considered the individual's home. Furthermore, the individual shall be deemed to have expended for living expenses (in connection with the trade or business as a legislator) an amount equal to the sum of the amounts determined by multiplying each legislative day of such individual during the taxable year by the amount generally allowable with respect to such day to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States.

For purposes of section 604 of the Tax Reform Act, a legislative day during any taxable year for any individual shall be any day during such year that (1) the legislature was in session (including any day that the legislature was not in session for a period of 4 consecutive days or less), or (2) the legislature was not in session but the physical presence of the individual was formally recorded at a meeting of a committee of such legislature.

The Report of the Committee on Finance of the United States Senate, S. Rep. No. 94-938, 94th Cong., 2d Sess. (1976), 1976-3 C.B. (Vol. 3), 57, 203, indicates that the principal reason for the adoption of section 604 was to remove the uncertainty state legislators encountered in determining the location of their tax homes for the purpose of deducting allowable travel expenses under section 162 of the Code.

The express interrelationship between section 604 of the Tax Reform Act and section 162(a) of the Code makes applicable the requirement under section 162(a) that travel expenses must be incurred while away from home in order to be deductible.

HOLDINGS

1. Because B elected the place of residence within the legislative district as the tax home, it will be treated as the tax home for all legislative travel including travel between sessions.

2. The term "living expenses," as used in section 604 of the Act, refers to traveling expenses otherwise deductible under section 162 of the Code, including expenses of meals and lodging, laundry expenses, and other expenses incidental to travel while away from home in pursuit of the taxpayer's legislative trade or business, but such term does not include travel fares, costs of telegrams or telephone calls, or local transportation expenses for business purposes.

3. "Legislative days" do not include the days of any recess period of more than four consecutive days. The four day limit is not extended by Saturdays, Sundays or holidays.

4. The amount generally allowable to employees of the executive branch of the Federal Government for per diem while away from home but serving in the United States, as referred to in section 604 of the Act, is the maximum amount allowable to employees of the executive branch of the Federal Government for per diem in the particular city in which the state capital is located.

5. The Federal Government per diem amount set forth in 4 above is to be multiplied by the number of legislative days B was actually away from home overnight in the state capital on business during the year, in order to determine the amount of B's travel expenses that are deductible under section 162 of the Code pursuant to section 604 of the Act. This deductible amount is in addition to any deduction allowed under section 162 of the Code for the other travel expenses incurred by B while away from home, including business expenses incurred when the state legislature was not in session or for travel fares, costs of telegrams or telephone calls, or local transportation expenses for business purposes.