Rev. Rul. 71-412

The purpose of this ruling is to update Revenue Ruling 63-13, C.B. 1963-1, 69, and Revenue Ruling 65-212, C.B. 1965-2, 84, to provide subsistence and travel figures that most nearly reflect reasonable limits in light of current costs.

Section 274(d) of the Internal Revenue Code of 1954 and section 1.274-5 of the Income Tax Regulations provide rules for the substantiation of business expenditures for travel, entertainment, and gifts. The Commissioner of Internal Revenue, under the authority granted by section 1.274-5(f) of the regulations is authorized to prescribe rules governing 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. Such arrangements or allowances which 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) of the regulations, and (2) as satisfying the requirements of an adequate accounting to an employer with respect to such amounts for purposes of section 274-5(e) of the regulations.

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 his employees for subsistence in an amount not exceeding $36 per day or provides his employees with a per diem allowance in lieu of subsistence not exceeding $36 per day, 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 which are ordinary and necessary in the conduct of his trade or business and (2) the elements of time, place, and business purpose of travel are substantiated in accordance with paragraphs (b)(2) and (c) (other than subdivision (iii)(a) thereof) of section 1.274-5 of the regulations.

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) of the regulations 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 baggagemen. The term "subsistence" does not include taxicab fares or the costs of telegrams or telephone calls.

In any case where a fixed mileage allowance not exceeding 15 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 subdivision (iii)(a) thereof) of section 1.274-5 of the regulations, then such an allowance shall be deemed as satisfying, with respect to such travel amounts, the substantiation requirements of section 1.274-5(c) of the regulations and the adequate accounting requirements of section 1.274-5(e) of the regulations. Also, where an employer grants such an allowance 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) of the regulations.

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

The provisions of this ruling relating to reimbursement arrangements or per diem allowances will not apply in any case where 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) of the Code shall be 10 percent.

If a subsistence reimbursement arrangement or a per diem allowance in lieu of subsistence exceeds $36 per day or a mileage allowance exceeds 15 cents per mile, the presence of unusual circumstances which account for the variation may, nevertheless, constitute grounds for considering the arrangement or allowance as equivalent to substantiation and an adequate accounting to an employer of amount of travel expense for purposes of section 1.274-5 of the regulations. In such a case the employer should direct a request to the Commissioner of Internal Revenue, Attention: Income Tax Division, Washington, D.C. 20224, setting forth in detail information with respect to such arrangement or allowance and the reason for his belief that special circumstances justify the same treatment as that accorded arrangements or allowances falling within the scope of this ruling. The burden will be upon the employer in all such cases to establish to the satisfaction of the Commissioner the reasonableness of the arrangements or allowances paid under the special circumstances involved.

With respect to returns filed for taxable years ending after December 31, 1970, this Revenue Ruling supersedes Revenue Ruling 63-13, C.B. 1963-1, 69, and Revenue Ruling 65-212, C.B. 1965-2, 84, which relate to periods ending after December 31, 1962.