SERVICE PROVIDES OPTIONAL METHOD TO COMPUTE DEDUCTIBLE BUSINESS MEAL AND INCIDENTAL EXPENSES.

Rev. Proc. 90-15

SECTION 1. PURPOSE

This revenue procedure amplifies Rev. Proc. 89-67, 1989-52 I.R.B. 17, by providing an optional method for employees and self- employed individuals to use in computing the deductible costs of business meal and incidental expenses paid or incurred while traveling away from home. Use of this method is not mandatory, and a taxpayer may deduct actual allowable expenses if adequate records or other sufficient evidence are maintained for proper substantiation.

SEC. 2. PROCEDURE

Rev. Proc. 89-67 is hereby amplified by adding new subsections 4.03, 7.06, 7.07, 8.03, and 8.04, and modifying subsection 6.05, as follows:

SEC. 4. PER DIEM SUBSTANTIATION METHOD

* * * * *

03 OPTIONAL METHOD FOR MEALS ONLY DEDUCTION. In lieu of using actual expenses, employees and self-employed individuals, in computing the amount allowable as a deduction for ordinary and necessary business meal and incidental expenses paid or incurred for travel away from home, may use an amount computed at the Federal M&IE rate for the locality of travel for the period the employee or self- employed individual is away from home. Such amount will be deemed substantiated for purposes of paragraphs (b)(2) (travel away from home) and (c) of section 1.274-5T of the temporary regulations, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel expenses in accordance with those regulations.

SEC. 6. LIMITATIONS

* * * * *

05 APPLICATION OF THE 80-PERCENT LIMITATION ON MEAL EXPENSES. When a per diem allowance is paid only for meal and incidental expenses or when an amount for meal and incidental expenses is computed pursuant to section 4.03 above, an amount equal to the lesser of the per diem allowance or the Federal M&IE rate for the locality of travel for the period away from home is treated as an expense for food and beverages. When a per diem allowance is paid for lodging, meal, and incidental expenses, the payor must treat an amount equal to the Federal M&IE rate for the locality of travel for the period the employee is away from home as an expense for food and beverages. For purposes of the preceding sentence, when a per diem allowance for lodging, meal and incidental expenses for a full day of travel is paid at a rate that is less than the Federal per diem rate for the locality of travel, the payor may treat an amount equal to 40 percent of such per diem allowance for a full day of travel as the Federal M&IE rate for the locality of travel.

SEC. 7. APPLICATION

* * * * *

06 An employee may deduct an amount computed pursuant to section 4.03 above only as an itemized deduction. This itemized deduction is subject to the 80-percent limitation on meal and entertainment expenses provided in section 274(n) of the Code and the 2-percent floor on miscellaneous itemized deductions provided in section 67.

07 A self-employed individual may deduct an amount computed pursuant to section 4.03 above in determining adjusted gross income under section 62(a)(1) of the Code. This deduction is subject to the 80-percent limitation on meal and entertainment expenses provided in section 274(n) of the Code.

SEC. 8. EFFECT ON OTHER DOCUMENTS

* * * * *

03 Rev. Proc. 83-71, 1983-2 C.B. 590, which sets forth an optional method that employees and self-employed individual may use in computing the amount allowable as a deduction for business meal expenses paid or incurred for travel away from home, is hereby superseded for such expenses paid or incurred on or after January 1, 1989.

04 Notice 87-23, 1987-1 C.B. 467, at 468, which in part provides for a reasonable allocation of a single amount paid to cover lodging, meal, and other expenses, is modified pursuant to section 6.05 above for per diem allowances paid to an employee on or after January 1, 1990, with respect to lodging, meal, and incidental expenses paid or incurred for travel while away from home on or after January 1, 1990.

DRAFTING INFORMATION

The principal author of this revenue procedure is Beverly A. Baughman of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this revenue procedure, contact Ms. Baughman on (202) 566-5985 (not a toll-free call).