Rev. Rul. 75-170

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the positions set forth in I.T. 3395, 1940-2 C.B. 64, and Rev. Rul. 61-221, 1961-2 C.B. 34.

The question presented is whether locomotive engineers and other railroad trainmen are entitled to deduct, for Federal income tax purposes, their costs of meals and lodging (and expenses incident thereto, such as tips) as traveling expenses while "away from home" or as "overnight" expenses, under the circumstances described below.

Railroad employees, such as, but not limited to, locomotive engineers, conductors, brakemen, and firemen, are assigned to regularly scheduled runs from their home terminals and return. On arrival at away-from-home terminals on such runs, they are released from service for sufficient time to secure necessary sleep or rest. Although not ordered by their employer to rent a room nor to sleep, these employees, because they need sleep and rest to properly perform their duties on the return runs, incur and pay expenses for meals and lodging (and expenses incident thereto, such as tips) before starting their return trips. They receive allowances from their employer for such expenses, and some of the employees account to their employer for the expenses incurred.

Section 162(a) of the Internal Revenue Code of 1954 provides, in part, for the deduction of 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. Section 1.162-2 of the Income Tax Regulations provides that traveling expenses include travel fares, meals and lodging, and expenses incident to such travel.

The Internal Revenue Service in Rev. Rul. 61-221 announced that it will follow the decision in Williams v. Patterson, 286 F. 2d 333 (5th Cir. 1961), wherein the facts are similar to the facts in the instant case. In Williams the court stated that the "correct rule" governing the deductibility of the cost of meals, lodging, and tips was that if the nature of the railroad employee's employment was such that when away from home, during released time, it was reasonable for him to need and to obtain sleep or rest in order to meet the exigencies of his employment or business demands of his employment, his expenditures (including incidental expenses, such as tips) for the purpose of obtaining sleep or rest were deductible traveling expenses under section 162(a) of the Code.

Accordingly, railroad employees who stop performing their regular duties (with their employer's tacit or expressed concurrence) at away-from-home terminals in order to obtain substantial sleep or rest prior to making a return run to the home terminal, are entitled to deduct their costs of meals and lodging (including expenses incident thereto, such as tips) as traveling expenses pursuant to section 162(a) of the Code.

Further, such absence need not be for an entire 24-hour day or throughout the hours from dusk until dawn, but it must be of such duration or nature that the taxpayers cannot reasonably be expected to complete the round trip without being released from duty, or otherwise stopping (with their employer's tacit or expressed concurrence) the performance of their regular duties, for sufficient time to obtain substantial sleep or rest.

However, the Service does not consider the brief interval during which employees may stop, or be released from duty, for sufficient time to eat, but not to obtain substantial sleep or rest, as being an adequate rest period to satisfy the requirement for deducting the cost of meals on business trips completed within one day. Thus, amounts incurred and paid for such meals are not deductible. See United States v. Correll, 389 U.S. 299 (1967), 1968-1 C.B. 64, and Williams, above.

The provisions of section 274 of the Code and section 1.274-5 of the regulations apply with regard to the substantiation of deductions by employees for the cost of meals and lodging (including expenses incident thereto, such as tips). These provisions also apply to the treatment of allowances received by the employees for the cost of meals and lodging.

Employees who do not account to their employer for the allowances they receive must include in income the total of all amounts received as advances or reimbursements from their employer, including all amounts charged directly or indirectly to the employer through credit cards or otherwise, on statements attached to their Federal income tax returns. These employees must meet the substantiation requirements of section 274 of the Code for all amounts they deduct as business expenses.

Employees who are required to, and do, make an adequate accounting to their employer of business expenses incurred solely for the benefit of the employer, and of all amounts received from the employer as advances, reimbursements, or allowances, need not report business expenses for travel, or the allowances received for that purpose, provided that the total amount of the allowances is equal to the expenses. If the allowances exceed expenses, the employees must include the excess (including amounts received for expenditures not deductible by the employees) in income on their Federal income tax returns. If the expenses exceed the allowances, and the employees wish to claim the excess as a deduction, they must meet the substantiation requirements of section 274 of the Code.

I.T. 3395 and Rev. Rul. 61-221, relating to the deductibility of similar costs by railroad employees, are superseded.

¹ Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.