Rev. Rul. 80-62

The purpose of this revenue ruling is to update Rev. Rul. 74-433, 1974-2 C.B. 92, as modified by Rev. Rul. 77-410, 1977-2 C.B. 85, to provide rules for the substantiation of expenditures for ordinary and necessary business expenses for subsistence of an employee traveling away from home and ordinary and necessary expenses of transportation whether or not traveling away from home that most nearly represent present reasonable limits in light of current costs.

Section 274(d) of the Internal Revenue Code and section 1.274-5 of the Income Tax Regulations, provide rules for the substantiation of business expenditures for travel, and for reimbursement arrangements or per diem allowances for ordinary and necessary expenses of an employee traveling away from home (exclusive of transportation costs to and from destination), and mileage allowances for similar transportation expenses. Under the authority granted to the Commissioner by section 1.274-5(f) of the regulations, such arrangements or allowances that are in accordance with reasonable business practices may be regarded (1) as equivalent to substantiation by adequate records or other sufficient evidence of the amount of such traveling expenses for purposes of section 1.274-5(c), and (2) as satisfying the requirements of an adequate accounting to an employer with respect to such amounts for purposes of section 1.274-5(e).

Pursuant to such authority, it is held as follows:

If, in the case of expenses for travel away from home (exclusive of costs of transportation to and from destination), an employer reimburses employees for subsistence or provides the employees with a per diem allowance in lieu of subsistence in an amount that does not exceed the greater of (1) $44 per day or (2) the maximum per diem rate authorized to be paid by the Federal Government in the locality in which the travel is performed, such reimbursements and allowances shall be deemed substantiated within the meaning of section 1.274-5(c) of the regulations if (1) the employer reasonably limits payment of such travel expenses to those that are ordinary and necessary in the conduct of the trade or business and (2) the elements of time, place, and business purposes of travel are substantiated in accordance with paragraphs (b)(2) and (c) (other than subparagraph (2)(iii)(a) thereof) of section 1.274-5.

The district director will determine whether an employer reasonably limits the payment of expenses for travel away from home to such expenses as are ordinary and necessary in the conduct of trade or business by (1) in the case of reimbursements for actual subsistence expenses, determining whether the employer maintains adequate internal audit controls, such as requiring an employee's expense account to be verified and approved by a responsible person other than the employee incurring the expense, and (2) in the case of per diem allowances in lieu of subsistence, determining whether the employer's travel allowance practices are based on reasonably accurate estimates of travel costs, including recognition of cost variances encountered in different localities. If the amount of traveling expenses away from home is deemed substantiated for purposes of section 1.274-5(c) of the regulations, the adequate accounting requirements of section 1.274-5(e) shall be deemed satisfied.

As used in this revenue ruling, the term "subsistence" includes, but is not limited to, reasonable travel expenses for meals and lodging, laundry, cleaning and pressing of clothing, and fees and tips for services, such as for waiters and baggage handlers. The term "subsistence" does not include taxicab fares or the costs of telegrams or telephone calls.

If a fixed mileage allowance not exceeding 18.5 cents per mile is used by an employer in payment of an employee's ordinary and necessary expenses of transportation while traveling away from home and the elements of time, place, and business purpose of the travel are substantiated in accordance with paragraphs (b)(2) and (c) (other than subparagraph (2)(iii)(a) thereof) of section 1.274-5 of the regulations, such an allowance shall be deemed as satisfying, with respect to such travel amounts, the substantiation requirements of section 1.274-5(c) and the adequate accounting requirements of section 1.274-5(e). Also, if an employer grants an allowance not exceeding 18.5 cents per mile to an employee for ordinary and necessary transportation expenses not involving travel away from home, such an arrangement shall be considered to be an accounting to the employer within the meaning of section 1.162-17(b). However, an employer may grant an additional allowance for parking fees and tolls attributable to the traveling and transportation expenses as separate items.

Pursuant to section 1.274-5(e)(2) of the regulations if an employee, under a travel expense arrangement or allowance practice discussed above, receives an amount from an employer equal to the deductible business expenses (that do not include personal, living, or family expenses or travel expenses disallowed by section 274(c) of the Code), the employee need not report such reimbursement in gross income.

If an employee, under a travel expense arrangement or allowance practice discussed above, receives an amount from an employer in excess of the deductible business expenses (that is, expenses which do not include personal, living, or family expenses or travel expenses disallowed by section 274(c) of the Code), the employee must report such excess amount in gross income.

If an employee, under a travel expense arrangement or allowance practice discussed above, receives an amount from an employer less than the deductible business expenses (that do not include personal, living, or family expenses or travel expenses disallowed by section 274(c) of the Code), and the employee wants to claim a deduction for such excess expenses, the employee must report the reimbursements in gross income and claim deductions for all the ordinary and necessary business expenses.

The provisions of this revenue ruling relating to reimbursement arrangements or per diem allowances will not apply in any case when an employer and an employee are related within the meaning of section 267(b) of the Code, but for this purpose the percentage of ownership interest referred to in section 267(b)(2) shall be 10 percent.

With respect to expenses paid or incurred after December 31, 1978, this Revenue Ruling supersedes Rev. Rul. 74-433 and Rev. Rul. 77-410.