The IRS has updated 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 that are deemed substantiated under Reg. §1.274-5. The new procedure provides transition rules for the last three months of calendar year 2009 and updates the simplified high-low per diem rates and the high-cost/low-cost localities.
CONUS rates. Taxpayers may continue to use the current CONUS rates in effect for the first nine months of 2009 instead of the updated GSA rates; however, they must consistently use one or the other for the period October 1, 2009, through December 31, 2009.
Meal and incidental expenses. Taxpayers who used the federal meal and incidental expense rates for the first nine months of calendar year 2009 may not use the transportation industry rates provided in the new procedure until January 1, 2010. Conversely, taxpayers who used the transportation industry rates for the first nine months of 2009 cannot use the federal meal and incidental expense rates until January 1, 2010.
Substantiation method. Payers who used the substantiation method for the first nine months of calendar year 2009 may not use the high-low method until January 1, 2010, and vice versa. However, payers using the high-low method may use the rates and high-cost localities contained in Rev. Proc. 2008-59, I.R.B. 2008-41, 857, rather than the updated rates and high-cost localities contained in the new procedure for travel on or after October 1, 2009, and before January 1, 2010.
Per diem rates. The update applies to per diem allowances paid for travel on or after October 1, 2009. The simplified high-low per diem rates have increased to $258 for high-cost localities and to $163 for other localities within CONUS. For purposes of applying the high-low substantiation method and the 50% limitation on meal expenses, the federal meal and incidental expense rate is treated as $65 for a high-cost locality and $45 for any other locality within CONUS.
Monterey, California; Denver/Aurora, Colorado; Bar Harbor, Maine; Conway, New Hampshire; Glens Falls, New York; Lake Placid, New York; and Hershey, Pennsylvania, have been added to the list of high-cost localities.
The portion of the year for which the following are high-cost localities has been changed: Phoenix/Scottsdale, Arizona; Napa, California; San Diego, California: Telluride, Colorado; Vail, Colorado; Miami, Florida; Naples, Florida; Baltimore City, Maryland; Cambridge/St. Michaels, Maryland; Ocean City, Maryland; and Jamestown/Middletown/Newport, Rhode Island.
The following localities have been removed from the list of high-cost localities: Crested Butte/Gunnison, Colorado; Silverthorne/Breckenridge, Colorado; and Palm Beach, Florida.
The following localities have been redefined: Floral Park/Garden City/Great Neck, New York, no longer includes Glen Gove and Roslyn; Tarrytown/White Plains/New Rochelle, New York, no longer includes Yonkers. (Rev. Proc. 2009-47, October 1, 2009.
Reprinted with permission from CCH/Wolterskluwer