Guest Article

(From the October 20, 2008 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS Updates Business Travel Expenses Deemed Substantiated / Per Diem Rates

Revenue Procedure 2008-59 updates the rules under which an employee's expenses for lodging, meals and incidental expenses while traveling away from home are deemed to be substantiated under Treasury Regulation § 1.274-5 when an employer provides a per diem allowance. The Procedure also provides, for those employees and self-employed individuals who are not reimbursed, an optional method for use in computing the amounts paid or incurred for business meals and incidental expenses while traveling away from home.

The Revenue Procedure restates the existing rules for substantiation under Revenue Procedure 2007-63, but modifies the allowable per diem rate for lodging, meals and incidental expenses (and for computing a non-reimbursed individual's meals and incidental expenses deduction) consistent with the updated per diem rates published by the U.S. General Services Administration effective October 1, 2008. For expenses incurred for the period from October 1 through the end of 2008, a taxpayer must consistently use either the old or the updated Federal per diem rates.

The Procedure also modifies the allowable per diem rate for employers using the "high-low substantiation method" -- by raising the rate for lodging, meal and incidental expenses from $237 to $256 for travel to any high-cost locality, and from $152 to $158 for travel to any other locality within the continental United States. The list of high-cost localities was modified to add new localities, to change the portion of the year for which certain localities are considered high-cost, and to remove certain previously designated localities from the list. As with the changes in the Federal per diem rates, in the case of employers who use the "high-low substantiation method," for expenses incurred for the period from October 1 through the end of 2008, the employer must consistently use the rates under either the old or updated Revenue Procedure.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Erinn Madden 202.572.7677, Bart Massey 202.220.2104, Mark Neilio 202.378.5046, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Tom Veal 312.946.2595, Deborah Walker 202.879.4955. Copyright 2008, Deloitte.