San Francisco Tax Preparation / CPA: IRS Updates Rules on Using Per Diem Rates to Substantiate Expenses Incurred Away from Home
The IRS has updated Rev. Proc. 2011-47 to reflect changes made by the Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97).
The guidance provides the rules for determining the amount of an employee’s ordinary and necessary business expenses for lodging, meals, and incidental expenses while traveling away from home. Specifically, it sets out the rules for using a per diem rate to substantiate lodging and meal and incidental expenses (M&IE) of an employee, or reimbursed M&IE only.
Rev. Proc. 2019-48 notes that employees are not required to use the per diem rates. They may substantiate actual allowable expenses. However, in order to deduct actual expenses, the employee must keep adequate records or provide other acceptable evidence.
Amendments made by the TCJA temporarily suspend all miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor for tax years year beginning after December 31, 2017, and before January 1, 2026 (suspension period). Such miscellaneous expenses include unreimbursed employee travel expenses.
The TCJA also amended Code Sec. 274(a) to disallow the deduction for entertainment expenses. For expenses incurred after December 31, 2017, businesses can no longer deduct expenses related to entertainment, amusement, or recreation. Businesses may continue to deduct 50 percent of meal expenses under Code Sec. 274(n)(1).
Updates to Reflect TCJA
In order to reflect the amendments made by the TCJA, Rev. Proc. 2019-48 makes a number of modifications to Rev. Proc. 2011-47. These include replacing sections 7.05, 7.06, and 7.07 to clarify that:
- unreimbursed employee travel expenses that are miscellaneous itemized deductions are not permitted during the suspension period;
- deductions for entertainment expenses are generally disallowed; and
- performing artists, certain government officials, teachers, and members of the armed forces described under Code Sec. 62(a)(2)(B) – (E), may continue to use the methods allowed under sections 4.03 and 4.05 to substantiate their expenses.
In addition, the definition of “incidental expenses” in section 3.02 is updated to reflect the definition of this term in the current Federal Travel Regulations, 41 C.F.R. 300-3.1.
- Rev. Proc. 2019-48 is effective on or after November 26, 2019 for:
- per diem allowances for lodging and M&IE paid to an employee,
- M&IE s paid to an employee,
- travel away from home, or
- M&IE for purposes of computing the amount allowable as a deduction for travel away from home.
Rev. Proc. 2011-47 is modified and superseded on November 26, 2019.