Rev. Rul. 65-212

Advice has been requested whether an employee who pays or incurs ordinary and necessary business travel subsistence expenses for which he is paid a per diem allowance in an amount exceeding $25 per day is considered as meeting the substantiation and adequate accounting requirements of section 1.274-5 of the Income Tax Regulations where the amount is not in excess of 125 percent of the rate authorized to be paid by the Federal Government in such localities.

The Commissioner of Internal Revenue, under the authority granted by section 1.274-5(f) of the regulations, prescribed in Revenue Ruling 63-13, C.B. 1963-1, 69, rules under which certain reimbursement arrangements and per diem or mileage allowance practices used by employers to pay expenses of employees while traveling in the ordinary course of business would be considered as satisfying the substantiation and adequate accounting requirements of section 1.274-5 of the regulations.

Pursuant to this same authority, it is held that per diem allowances in lieu of subsistence paid by an employer to his employee for business travel expenses which do not exceed the greater of (1) $25 per day or (2) 125 percent of the maximum per diem rate authorized to be paid by the Federal Government in the locality in which the travel is performed will be regarded, with respect to the amount of such traveling expenses, as satisfying the substantiation requirements of section 1.274-5(c) of the regulations and the adequate accounting to an employer requirements of section 1.274-5(e) of the regulations, provided the rules of Revenue Ruling 63-13 are otherwise met .

The current maximum rate of per diem allowance in lieu of subsistence authorized to be paid by the Federal Government while traveling on official business within the continental United States (other than Alaska) is $16 per day. The maximum rate of per diem allowance in lieu of subsistence authorized to be paid by the Federal Government while traveling outside the continental United States or in Alaska varies depending upon the locality. For purposes of computing 125 percent of the maximum per diem rate authorized to be paid by the Federal Government for foreign travel, see the Standardized Regulations (Government Civilians, Foreign Areas); for travel in Alaska, Hawaii, Commonwealth of Puerto Rico, the Canal Zone, and the Territories and Possessions of the United States, see the Standardized Government Travel Regulations.

As used in this Revenue Ruling and Revenue Ruling 63-13, 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 baggagemen. The term `subsistence' does not include taxicab fares or the costs of telegrams or telephone calls.

To the extent the per diem allowance practice discussed in Revenue Ruling 63-13, C.B. 1963-1, 69, cannot exceed $25 per day, such ruling is hereby modified.