SERVICE PROVIDES SPECIAL METHOD FOR TRANSPORTATION INDUSTRY PERSONNEL TO DETERMINE AWAY FROM HOME EXPENSE DEDUCTIONS.

Rev. Proc. 90-38

SECTION 1. PURPOSE

This revenue procedure amplifies Rev. Proc. 89-67, 1989-52 I.R.B. 17, as amplified by Rev. Proc. 90-15, 1990-10 I.R.B. 23, by providing a special method for determining the amount of ordinary and necessary expenses of an employee or self-employed individual in the transportation industry for meal and incidental expenses incurred while traveling away from home that will be deemed substantiated for purposes of section 1.274-5T of the temporary Income Tax Regulations. This revenue procedure also clarifies and modifies Rev. Proc. 89-67 by providing that (1) a per diem allowance is treated as paid only for meal and incidental expenses if the payor pays an employee for actual expenses for lodging, (2) only payors are not required to reduce the Federal per diem rates for meals provided in kind, and (3) the 6-hour/$6 limitation in the Federal Travel Regulations for OCONUS travel does not apply.

SEC. 2. PROCEDURE

Rev. Proc. 89-67 is hereby clarified by revising subsection 4.02, amplified by adding subsection 4.04, and modified by revising subsections 6.03 and 6.04 as follows:

SEC. 4. PER DIEM SUBSTANTIATION METHOD

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02 MEALS ONLY PER DIEM ALLOWANCE. If a payor pays a per diem allowance only for meals and incidental expenses in lieu of reimbursing actual expenses for meal and incidental expenses incurred or to be incurred by an employee for travel away from home, the amount of the expenses that is deemed substantiated is equal to the lesser of the per diem allowance or the amount computed at the Federal M&IE rate for the locality of travel for the period the employee is away from home. A per diem allowance is treated as paid only for meal and incidental expenses if (1) the payor pays the employee for actual expenses for lodging, (2) the payor provides the lodging in kind, (3) the payor pays the actual expenses for lodging directly to the provider of the lodging, or (4) the payor does not have a reasonable belief that lodging expenses were or will be incurred by the employee.

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04 SPECIAL MEALS ONLY RATE FOR TRANSPORTATION INDUSTRY. This section 4.04 applies to (1) a payor that pays a per diem allowance only for meal and incidental expenses for travel away from home as described in section 4.02 above to an employee in the transportation industry, or (2) an employee or self-employed individual in the transportation industry that computes the amount allowable as a deduction for meal and incidental expenses for travel away from home in accordance with section 4.03 above. Such a taxpayer (1) may treat $30 as the Federal M&IE rate for any locality of travel in CONUS, and/or (2) may treat $34 as the Federal M&SE rate for any locality of travel OCONUS. A payor that uses either (or both) of these special rates with respect to an employee must use these special rate(s) for all amounts subject to section 4.02 above paid to that employee for travel away from home within CONUS and/or OCONUS, as the case may be, during the calendar year. Similarly, an employee or self-employed individual that uses either (or both) of these special rates must use these special rate(s) for all amounts computed pursuant to section 4.03 above for travel away from home within CONUS and/or OCONUS, as the case may be, during the calendar year. For purposes of this section 4.04, an employee or self-employed individual is "in the transportation industry" only if the employee's or individual's work (1) is of the type that directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and (2) regularly requires travel away from home which, during any single trip away from home, usually involves travel to localities with differing Federal M&IE rates. For purposes of the preceding sentence, a payor must determine that an employee or a group of employees is "in the transportation industry" by using a method that is consistently applied and in accordance with reasonable business practice.

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SEC. 6. LIMITATIONS

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03 FEDERAL PER DIEM OR M&IE RATE. A payor is not required to reduce the Federal per diem rate or the Federal M&IE rate for the locality of travel for meals provided in kind, provided the payor has a reasonable belief that meal and incidental expenses were or will be incurred by the employee. In addition, a reduction to reflect the 6- hour/$6 limitation provided in 41 C.F.R. Part 301-7.6(c)(2)(iii) (1989) of the Federal Travel Regulations is not required in order to apply the Federal per diem rates and Federal M&IE rates to OCONUS travel.

04 PRORATION OF THE FEDERAL PER DIEM OR M&IE RATE. Pursuant to the Federal Travel Regulations, in determining the Federal per diem rate or the Federal M&IE rate for the locality of travel, the full applicable Federal M&IE rate is available for a full day of travel from 12:01 a.m. to 12:00 midnight. For purposes of determining the amount deemed substantiated under section 4 or section 5 above with respect to partial days of travel away from home, either of the following methods may be used to prorate the Federal per diem rate or the Federal M&IE rate:

(1) Such rate may be prorated using the method prescribed by the Federal Travel Regulations under which one-fourth of the applicable Federal M&IE rate is allowed for each 6-hour quarter of the day (i.e., midnight to 6 a.m., 6 a.m. to noon, noon to 6 p.m., and 6 p.m. to midnight) during any portion of which the employee or self- employed individual is traveling away from home in connection with the performance of services as an employee or self-employed individual; or

(2) Such rate may be prorated using any method that is consistently applied and in accordance with reasonable business practice. For example, if an employee travels away from home from 9 a.m. one day to 5 p.m. the next day, a method of proration that results in an amount equal to 2 times the Federal M&IE rate will be treated as being in accordance with reasonable business practice (even though only 1 1/2 times the Federal M&IE rate would be allowed under the Federal Travel Regulations). Similarly, if a self-employed individual travels away from home from 7 p.m. one day to 9 p.m. the next day, a method of proration that results in an amount equal to 1 1/2 times the Federal M&IE rate will be treated as being in accordance with reasonable business practice (even though only 1 1/4 times the Federal M&IE rate would be allowed under the Federal Travel Regulations).

DRAFTING INFORMATION

The principal author to 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).