Rev. Rul. 60-282

Advice has been requested (1) whether certain per diem and mileage allowances paid by employers to their employees, which are in excess of the allowance prescribed in Revenue Ruling 58-453, C.B. 1958-2, 67, will be approved by the Commissioner of Internal Revenue as equivalent to an accounting by an employee to his employer for purposes of section 1.162-17(b) of the Income Tax Regulations; (2) whether allowances, either within the scope of Revenue Ruling 58-453 or approved by the Commissioner as equivalent to an accounting for purposes of section 1.162-17(b) of the regulations, will also be considered an accounting by an employee to his employer for purposes of section 1.6041-3(i) of the regulations, relating to the reporting by employers of reimbursements paid for travel expenses on Form 1099, and (3) whether Revenue Ruling 55-637, C.B. 1955-2, 26, and I.T. 3541, C.B. 1942-1, 41, relating to the reporting as income of mileage allowances received by rural mail carriers, are still applicable in view of section 1.162-17 of the regulations and Revenue Ruling 58- 453.

Section 1.162-17 of the regulations provides rules for the reporting of information on income tax returns by taxpayers who pay or incur ordinary and necessary business expenses in connection with the performance of services as employees. Section 1.162-17(b) of the regulations set forth the rules for the reporting of expenses for which the employee is required to account to his employer. Subparagraph (4) of section 1.162-17(b) of the regulations provides, in part, that, in lieu of requiring the submission of an expense account or other written statement to an employer showing the nature and amounts of the employee's expenses, "the Commissioner in his discretion may approve reasonable business practices under which mileage, per diem in lieu of subsistence, and similar allowances providing for ordinary and necessary business expenses in accordance with a fixed scale may be regarded as equivalent to an accounting to the employer."

Revenue Ruling 58-453, supra, holds that an employee, who pays or incurs ordinary and necessary business expenses for travel (including meals and lodging) and transportation for which he is paid by his employer a fixed mileage allowance or a per diem allowance in lieu of subsistence at rates not in excess of 125 percent of the maximum rates authorized to be paid by the Federal Government in the locality in which the travel is performed, will be deemed to have been required to account to his employer for such expenses for purposes of section 1.162-17(b) of the regulations. Based upon this standard, the Revenue Ruling holds that a mileage allowance not in excess of 1.25 cents per mile and a per diem allowance not in excess of $15 per day while traveling within the continental United States would fall within the scope of the Revenue Ruling. However, if and when the maximum mileage and/or per diem allowance authorized to be paid by the Federal Government is changed, the 12.5 cents per mile and/or the $15 per day will likewise be adjusted to 125 percent of the changed amount. Allowances not in excess of 125 percent of the amount authorized to be paid by the Standardized Government Travel Regulations for employees traveling outside the continental United States would also be within the scope of the Revenue Ruling. The Revenue Ruling also states that the presence of unusual circumstances which account for allowances in excess of the rates prescribed therein may constitute grounds for considering the amounts allowed as having been accounted for to the employer, but the payment of allowances in amounts greater than those specified in that Revenue Ruling will not, in and of itself, constitute an unusual circumstance.

The following are some illustrations of mileage rates and per diem allowances in lieu of subsistence paid by particular employers for travel in the United States (other than the States of Alaska and Hawaii) which the Commissioner of Internal Revenue has been requested to approve as reasonable business practices which will be regarded as equivalent to an accounting by employees within the meaning of section 1.162-17(b) of the regulations.

(1) M corporation operates nine divisions located in various sections of the United States. Management employees of the company are reimbursed on an actual expense basis. Other executives are reimbursed for travel expenses on a per diem basis as follows:

   Grade of employee                 California      All other states

It is held that the reasons set forth by the company do not constitute grounds for regarding the per diem allowances which are in excess of $15 as equivalent to an accounting to an employer within the meaning of section 1.162-17(b) of the regulations.

(2) N corporation has plants in cities X and Y. The business of the company requires its employees to travel to all parts of the United States. All employees required to travel on company business are given per diem allowance as follows:

                                                Salary        Salary

Higher per diem rates are paid to employees in higher salary grades because such employees holding highly responsible positions are expected to utilize accommodations conforming to their status as high level representatives of the company.

N corporation has established to its satisfaction that its per diem rates are essentially equivalent to actual reasonable expenses. The executives charged with the administration of the travel policy regularly compare their personal travel expenses with the allowable per diem to test the reasonableness of the rates. The rates are reviewed from time to time and adjusted as circumstances may justify, and N corporation has furnished evidence both that the rates are reasonable for the area in which paid and that the rates are adjusted periodically in accordance with changing circumstances.

It is held that the per diem allowances paid to employees in salary grades "1" through "11," set forth above, will be regarded as equivalent to an accounting to an employer under section 1.162-17(b) of the regulations. The rates in excess of $15 for employees in salary grades "12" and above will not be so regarded, since the amounts by which they are greater than the allowances paid to other employees (and considered reasonable) are based upon differences in grade or salary rather than on geographical differences in costs.

(3) Members of the uniformed services (Army, Navy, Air Force, Marine Corps, Coast Guard, Coast and Geodetic Survey, and Public Health Service) are paid mileage and per diem allowances for official travel at rates prescribed in regulations promulgated by the Secretaries of the Army, Navy, Air Force, Treasury, Commerce, and Health, Education and Welfare under authority of section 303(h) of the Career Compensation Act of 1949, 37 U.S.C. 253(a). Under this authority, Joint Travel Regulations for the Uniformed Services have been issued setting forth the rates to be paid members of the uniformed services.

In establishing travel allowance, the Secretaries concerned are required under section 303(f) of the Career Compensation Act of 1949, to consider, in prescribing (1) monetary allowances in lieu of transportation, the average cost of first-class transportation, including sleeping accommodations; (2) per diem rates, the current economic data on costs of subsistence, including lodging and other related necessary incidental expenses; and (3) mileage rates, the average cost of first-class transportation including sleeping accommodations and current economic data on the cost of subsistence. The rates fixed in the Joint Travel Regulations are frequently reviewed and revised.

The maximum mileage allowances presently prescribed in the Joint Travel Regulations for travel within and without the United States and the maximum per diem allowances in lieu of subsistence for travel within the United States are equal to or less than the rates referred to in Revenue Ruling 58-453. The current per diem allowances for overseas travel are prescribed in Table 3, Appendix B, of the Joint Travel Regulations. Most of these rates are lower than or equal to 125 percent of the rates prescribed in the Standardized Government Travel Regulations, but a few are in excess of 125 percent of such rates.

It is held that the per diem allowances for official travel at rates prescribed in Table 3, Appendix B of the Joint Travel Regulations will be regarded as equivalent to an accounting to an employer under section 1.162-17(b) of the regulations.

(4) O corporation has a large number of employees who are required to have their automobiles available for use on company business during normal work hours and periods of on-call duty although the actual mileage driven during any one month may not be very great. The rate of reimbursement for the travel expenses of these employees is 29.7 cents per mile for the first 150 miles and 4.7 cents per mile for all mileage over 150 miles in each month. The policy of the company is to reimburse only for actual costs. Rates are adjusted when it is determined that the costs have increased or decreased. The present rates are designed to provide for reimbursement of fixed costs attributable to the company business by the mileage paid for the first 150 miles of travel each month.

During a six-month period in 1958, 81 percent of the more than 1,500 employees reimbursed under these rates were reimbursed at rates averaging 12.5 cents per mile or less. The remaining employees were reimbursed at rates ranging from 12.6 cents per mile to 29.7 cents per mile. The average rate for all employees during the period was 8.63 cents per mile.

It is held that reimbursements under the system of O corporation constitute a reasonable business practice which will be regarded as equivalent to an accounting to an employer under section 1.162-17(b) of the regulations.

(5) Section 609(a) of the Postal Field Service Compensation Act of 1955, 39 U.S.C. 1009, as amended by Public Law 85-399, 85th Cong., 72 Stat. 107, approved May 14, 1958, provides that rural mail carriers shall be paid for equipment maintenance a sum equal to 10 cents per mile for each mile or major fraction of a mile scheduled or $3.50 per day, whichever is greater.

The provisions of I.T. 3541, C.B. 1942-1, 41, as amplified by Revenue Ruling 55-6737, C.B. 1955-2, 26 require rural mail carriers to report on their income tax returns all receipts and expenditures with respect to vehicular equipment maintenance by including the fixed minimum mileage allowance received in their gross income and deducting, to the extent supported by proper evidence, the cost of operation, repairs, upkeep, and depreciation incurred in connection with the use of vehicles in the performance of mail service for the Government.

In view of section 1.162-17(b) of the regulations and Revenue Ruling 58-453, it is held that rural mail carriers are considered as having accounted to their employer for their business expenses for the purposes of section 1.162-17(b) of the regulations. No accounting will be required on their Federal income tax returns for such allowances or the expenses covered thereby if the total amount of the allowances received does not exceed such expenses.

The foregoing examples illustrate some of the principles which are applied in determining what per diem and mileage allowance paid by particular employers, which do not fall within the scope of Revenue Ruling 58-453, will be approved as reasonable business practices which will be regarded as equivalent to an accounting to an employer for the purposes of section 1.162-17(b) of the regulations.

To summarize, per diem and mileage allowances in excess of the rates allowed by Revenue Ruling 58-453 will not be approved where the rates vary with the grade or salary of the employee. However, it is recognized that hotel and other costs in certain localities are higher than such costs in other localities and that reasonable tolerances in per diem allowances based upon such variations may be the basis for a reasonable business practice that will meet the requirements of section 1.162-17(b) of the regulations. While the Federal government pays generally the same allowances for travel anywhere in the United States, other employers may fix rates based upon the actual expenses of their employees with reasonable variations based upon differing costs in different localities in the United States, provided it is shown by objective evidence that the rates are reasonable for the area in which paid and that it is the policy of the payor to adjust the rates periodically as changing circumstances require. Finally, it is also recognized that certain fixed expenses of operating an automobile while on the business of an employer may be incurred which will not be reflected in a fixed mileage rate for those employees who may only be required to drive a small number of miles in any period. Under these circumstances, it may be reasonable practice to provide either a minimum allowance or a mileage schedule which pays a greater rate for an initial number of miles and a lower rate for all excess miles.

Although the above principles illustrate payments of per diem and mileage allowances to employees, which, because of unusual circumstances, have been considered as an accounting to their employers for their business expenses, the requirement of Revenue Ruling 58-453, supra, that any employer who wishes per diem or mileage payments to his employees to be so considered should direct a request to that effect to the Commissioner of Internal Revenue, is still in effect. As specified in the Revenue Ruling, the request should set forth in detail an explanation of the arrangements under which these particular allowances are paid and the reasons for his belief that his special circumstances justify the same treatment as that accorded allowances falling within the scope of this ruling.

Section 6041 of the Code requires an information return to be filed by persons making payments to employees amounting to $600 or more in any year. Generally, if any part of such amounts are not required to be reported on a Withholding Tax Statement, Form W-2, they must be reported on Form 1099, U.S. Information Return.

Section 1.6041-3(i) of the regulations includes among the payments that need not be reported on Form 1099, advances, reimbursements, or charges for traveling and other business expenses of an employee to the extent that the employee is required to account to his employer (within the meaning of that term as set forth in paragraph (b)(4) of section 1.162-17 of the regulations) and does so account. Employees who receive per diem and mileage allowances within the scope of Revenue Ruling 58-48853, or under plans that are approved by the Commissioner as equivalent to an accounting for the purposes of section 1.162-17(b) of the regulations, are considered to have been required to account to their employer within the meaning of section 1.6041-3(i) of the regulations. Therefore, such reimbursements need not be reported on Form 1099.

To the extent that I.T. 3541 and Revenue Ruling 55-637 require a specific accounting "supported by proper evidence" on the part of a rural mail carrier who receives a fixed minimum mileage allowance for the cost of operation, repairs, upkeep, and depreciation incurred in connection with his use of a vehicle in the performance of his postal services for the Government, it is held that such rulings are superseded by section 1.162-17(b)(4) of the regulations and Revenue Ruling 58-453.

Revenue Ruling 58-453, supra, is hereby amplified.