IRS Updates Per Diem Rules to Take Into Account TCJA Changes
With Revenue Procedure 2019-48[1] the IRS has updated the rules regarding the use of per diem rates to substantiate, under IRC §274(d) and Reg. §1.274-5, the amount of ordinary and necessary business expenses paid or incurred while traveling away from home. The update incorporates the revisions made as part of the Tax Cuts and Jobs Act (TCJA), including the temporary suspension of the deduction for miscellaneous itemized deductions under IRC §67(g).
The procedure reminds us of the limited nature for the use of the per diem methods:
This revenue procedure provides rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal, and incidental expenses, or for meal and incidental expenses only, that a payor (an employer, its agent, or a third party) reimburses. Certain specified employees and self-employed individuals that deduct unreimbursed expenses for travel away from home may use a per diem rate for meals and incidental expenses, or incidental expenses only, under this revenue procedure. This revenue procedure does not provide rules for using a per diem rate to substantiate the amount of lodging expenses only.[2]
Section 3.16 provides the following explanations of the modifications made to the provisions of Revenue Procedure 2011-47 which previously governed per diem programs:
.16 This revenue procedure includes modifications to Rev. Proc. 2011-47 as follows:
(1) 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.
(2) Sections 7.05, 7.06, and 7.07 are deleted to reflect changes made by the TCJA: (a) unreimbursed employee travel expenses that are miscellaneous itemized deductions subject to the two-percent of adjusted gross income floor are not permitted during the suspension period, and (b) a deduction for expenses with respect to entertainment, amusement, or recreation is generally disallowed. New sections 7.05, 7.06 and 7.07 are added to clarify that employees described in § 62(a)(2)(B)-(E), may continue to use the methods allowed under sections 4.03 and 4.05 of this revenue procedure to substantiate their expenses.[3]
The first change mentioned is the change to the definition of incidental expenses. Per Section 3.02(3), incidental expenses now refers to fees and tips given to porters, baggage carriers, bellhops, hotel staff, and staff on ships. The term has the same meaning as found in the Federal Travel Regulations, 41 C.F.R. 300-3.1. Future changes to the definitions found in those regulations will be announced in the annual notice providing the special per diem rates.[4]
The other changes are found in Section 7.05 - .07, which allows the per diem deductions to continue to be used by employees who are in the classes allowed to deduct some or all of their expenses above the line. Such expenses defined in IRC §67(a)(2)(B)-(E) are:
Certain expenses of performing artists;
Certain expenses of state and local officials;
Certain expenses of elementary and secondary school teachers (the $250 above the line amount); and
Certain expenses of reserve components of the Armed Forces of the United States.
The clarification was deemed necessary since most employees will be barred any such employee business expense deductions by §67(g) during the suspension period.[5]