Posted 9/30/11

IRS Reinstates High-Low Method Of Travel Expense Substantiation, Sets 2011-2012 Per Diem Rates

In July, the IRS announced the end of the high-low method for substantiating travel expenses. After receiving many requests to reinstate it, the IRS now has issued a Notice and Revenue Procedure continuing the high-low method and setting the 2011-2012 per diem rates.

Notice 2011-81 provides the 2011-2012 special per diem rates for taxpayers to use in substantiating the amount of ordinary and necessary business expenses incurred while traveling away from home, specifically (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 are not required to use the per diem method, but may substantiate actual expenses if the taxpayer maintains adequate records or other sufficient evidence of actual expenses. Released with the Notice is Revenue Procedure 2011-47, which describes the rules and method for using the per diem rates.

Federal Per Diem Rates

The federal per diem rate is equal to the sum of the federal lodging expense rate and the federal meal and incidental expense rate for the day and locality of travel. The General Services Administration (GSA) publishes the rates for localities in the continental United States (CONUS). The GSA rates are available on the internet at www.gsa.gov. The rates for localities outside the continental United States (OCONUS) are established by the Secretary of Defense and include rates for non-foreign localities, including Alaska, Hawaii, Puerto Rico, the Northern Mariana Islands, and the possessions of the United States. The Secretary of State publishes rates for foreign localities. These rates are available on the internet at www.defensetravel.dod.mil and www.state.gov.

Special Rates for Transportation Industry

The special meals and incidental expense rates for taxpayers in the transportation industry are $59 for any locality of travel in the continental United States and $65 for any locality of travel outside the continental United States.

Rate for Incidental Expenses Only Deduction

The rate for any locality of travel for the incidental expenses only deduction is $5 per day.

High-Low Substantiation Method

For purposes of the high-low substantiation method, the per diem are $242 for travel to any high-cost locality and $163 for travel to any other locality within the continental United States. The amount of the $242 high rate and $163 low rate that is treated as paid for meals is $65 for travel to any high-cost locality and $52 for travel to any other locality. Localities are considered high-cost if they have a federal per diem rate of $202 or more. The full list of rates for different localities around the country is contained in the Notice.

The Notice is effective for per diem allowances for lodging, meal and incidental expenses, or for meal and incidental expenses only that are paid to any employee on or after October 1, 2011, for travel away from home on or after October 1, 2011.

For Notice 2011-81, click here.

For Rev. Proc. 2011-47, click here.