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Annual Per Diem Rate Guidance Changes "Incidental Expenses" Definition
(Parker Tax Publishing: October 11, 2013)

In a notice announcing the 2013-2014 special per diem rates used for substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, the IRS also notes changes made in the Federal Travel Regulations to the definition of incidental expenses. Notice 2013-65.

In Notice 2013-65, the IRS provides the annual update of the special per diem rates used in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home. Specifically, the notice provides: (1) the special transportation industry meal and incidental expenses rates (M&IE rates), (2) the rate for the incidental expenses only deduction, and (3) the rates and list of high-cost localities for purposes of the high-low substantiation method.

Taxpayers using the rates and the list of high-cost localities provided in Notice 2013-65 must comply with Rev. Proc. 2011-47. In Rev. Proc. 2011-47, the IRS provides rules for using a per diem rate to substantiate, under Code Sec. 274(d) and Reg. Sec. 1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home.

In Rev. Proc. 2011-47, the IRS provides that the term incidental expenses has the same meaning as in the Federal Travel Regulations, 41 C.F.R. 300-3.1. In Notice 2013-65, the IRS notes that the definition of incidental expenses was revised by the Federal Travel Regulations in October of 2012, to provide that incidental expenses include only fees and tips given to porters, baggage carriers, hotel staff, and staff on ships.

Before the change in the definition of incidental expenses, incidental expenses included transportation between places of lodging or business and places where meals are eaten and the mailing cost associated with filing travel vouchers and paying employer-sponsored charge card billings.

Practice Tip: The effect of this change in the definition of incidental expenses means that taxpayers using per diem rates may separately deduct or be reimbursed for transportation and mailing expenses.

For a discussion of the substantiation rules for expenses incurred while traveling away from home, see Parker Tax ¶91,130.

Parker Tax Publishing Staff Writers

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