SECTION 5. HIGH-LOW

SUBSTANTIATION METHOD

.01 General rule . If a payor pays a per diem allowance in lieu of reimbursing actual expenses for lodging, meal, and incidental expenses incurred or to be incurred by an employee for travel away from home and the payor uses the high-low substantiation method described in this

October 15, 2001 334 2001–42 I.R.B.

section 5 for travel within CONUS, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the per diem allowance for such day or the amount computed at the rate set forth in section 5.02 of this revenue procedure for the locality of travel for such day (or partial day, see section 6.04 of this revenue procedure). Except as provided in section 5.06 of this revenue procedure, this high-low substantiation method may be used in lieu of the per diem substantiation method provided in section 4.01 of this revenue procedure, but may not be used in lieu of the meals

only substantiation method provided in section 4.02 or 4.03 of this revenue procedure.

.02 Specific high-low rates . Except as provided in section 5.06 of this revenue procedure, the per diem rate set forth in this section 5.02 is $204 for travel to any “high-cost locality” specified in section 5.03 of this revenue procedure, or $125 for travel to any other locality within CONUS. Whichever per diem rate applies, it is applied as if it were the federal per diem rate for the locality of travel. For purposes of applying the high-low substantiation method and the § 274(n)

limitation on meal expenses (see section 6.05 of this revenue procedure), the federal M&IE rate shall be treated as $42 for a high-cost locality and $34 for any other locality within CONUS.

.03 High-cost localities . The following localities have a federal per diem rate of $165 or more, and are high-cost localities for all of the calendar year or the portion of the calendar year specified in parenthesis under the key city name, except as provided in section 5.06 of this revenue procedure:

Key city County or other defined location

California

Napa Napa (April 1-November 15) Palm Springs Riverside (January 1-May 31) San Francisco San Francisco San Mateo/Redwood City San Mateo Sunnyvale/Palo Alto/San Jose Santa Clara Tahoe City Placer

Colorado

Aspen Pitkin (January 1-April 30) Silverthorne/Keystone Summit Telluride San Miguel (December 20-September 30) Vail Eagle (December 1-March 31)

District of Columbia

Washington, D.C. Washington, D.C.; the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, in Virginia; and the counties of Montgomery and Prince George’s in Maryland

Florida

Key West Monroe (January 1-April 30) Palm Beach Cities of Boca Raton, Delray Beach, Jupiter, Palm Beach Gardens, Palm (January 1-April 30) Beach Shores, Singer Island, and West Palm Beach

Idaho

Sun Valley City limits of Sun Valley

Illinois

Chicago Cook and Lake

Louisiana

New Orleans/St. Bernard Orleans, St. Bernard, Plaquemine, and Jefferson Parishes (January 1-May 31)

Maine

Kennebunk/Kittery/Sanford York (June 15-October 31)

2001–42 I.R.B. 335 October 15, 2001

Key city County or other defined location

Maryland

(For the counties of Montgomery and Prince George’s, see District of Columbia) Ocean City Worcester (June 15-October 31)

Massachusetts

Boston Suffolk Cambridge Middlesex County (except Lowell) Martha’s Vineyard Dukes (June 1-October 15) Nantucket Nantucket (June 15-October 15)

Michigan

Mackinac Island Mackinac Traverse City Grand Traverse

Montana

Big Sky Gallatin (except West Yellowstone Park)

Nevada

Stateline Douglas

New Jersey

Atlantic City Atlantic (June 1-November 30) Cape May Cape May (except Ocean City) (June 1-November 30) Edison Middlesex (except Piscataway) Newark Essex, Bergen, Hudson and Passaic Ocean City City limits of Ocean City (June 15-September 15) Piscataway/Belle Mead Somerset; and City limits of Piscataway Princeton/Trenton Mercer County

New York

The Bronx/Brooklyn/Queens The boroughs of The Bronx, Brooklyn, and Queens Manhattan Manhattan Nassau County/Great Neck Nassau County Suffolk County Suffolk County White Plains City limits of White Plains

Pennsylvania

Hershey City limits of Hershey (June 1-September 15)

Utah

Ogden/Layton/Davis County Weber and Davis (January 1-February 28) Park City Summit (December 15-March 31) Provo Utah (January 15-February 28) Salt Lake City Salt Lake, Dugway Proving Ground, and Tooele Army Depot (January 15-February 28)

Virginia

(For the cities of Alexandria, Fairfax, and Falls Church, and the counties of Arlington, Fairfax, and Loudoun, see District of Columbia) Wintergreen Nelson

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.04 Changes in high-cost localities . The list of high-cost localities in section 5.03 of this revenue procedure differs from the list of high-cost localities in section 5.03 of Rev. Proc. 2000–39.

(1) The following localities (listed by key cities) have been added to the list of high-cost localities: Napa, California; San Mateo/Redwood City, California; Palm Beach, Florida; Kennebunk/Kittery/Sanford, Maine; Nantucket, Massachusetts; Stateline, Nevada; Atlantic City, New Jersey; Edison, New Jersey; Newark, New Jersey; Ogden/Layton/Davis County, Utah; Provo, Utah; and Salt Lake City, Utah.

(2) The portion of the year for which the following are high-cost localities (listed by key cities) has been changed: Telluride, Colorado; Vail, Colorado; Big Sky, Montana; and Park City, Utah.

(3) The following locality has been removed from the list of high-cost localities: Philadelphia, Pennsylvania.

the applicable federal M&IE rate for each partial day during which the employee or self-employed individual is traveling away from home in connection with the performance of services as an employee or self-employed individual; or

(2) Such rate may be prorated using any method that is consistently applied and in accordance with reasonable business practice. For example, if an employee travels away from home from 9 a.m. one day to 5 p.m. the next day, a method of proration that results in an amount equal to 2 times the federal M&IE rate will be treated as being in accordance with reasonable business practice (even though only 1 1/2 times the federal M&IE rate would be allowed under the Federal Travel Regulations).

(1) When an amount for meal and incidental expenses is computed pursuant to section 4.03 of this revenue procedure, the taxpayer must treat such amount as an expense for food and beverages.

(2) When a per diem allowance is paid only for meal and incidental expenses, the payor must treat an amount equal to the lesser of the allowance or the federal M&IE rate for the locality of travel for such day (or partial day, see section 6.04 of this revenue procedure) as an expense for food and beverages.

(3) When a per diem allowance is paid for lodging, meal, and incidental expenses, the payor must treat an amount equal to the federal M&IE rate for the locality of travel for each calendar day (or partial day, see section 6.04 of this revenue procedure) the employee is away from home as an expense for food and beverages. For purposes of the preceding sentence, when a per diem allowance for lodging, meal, and incidental expenses is paid at a rate that is less than the federal per diem rate for the locality of travel for such day (or partial day, see section 6.04 of this revenue procedure), the payor may treat an amount equal to 40 percent of such allowance as the federal M&IE rate

.05 Specific limitation .

(1) Except as provided in section 5.05(2) of this revenue procedure, a payor that uses the high-low substantiation method with respect to an employee must use that method for all amounts paid to that employee for travel away from home within CONUS during the calendar year. See section 5.06 of this revenue procedure for transition rules.

(2) With respect to an employee described in section 5.05(1) of this revenue procedure, the payor may reimburse actual expenses or use the meals only per diem method described in section 4.02 of this revenue procedure for any travel away from home, and may use the per diem substantiation method described in section 4.01 of this revenue procedure for any OCONUS travel away from home.

.06 Transition rules . A payor who used the substantiation method of section 4.01 of Rev. Proc. 2000–39 for an employee during the first 9 months of calendar year 2001 may not use the High-Low Substantiation Method in section 5 of this revenue procedure for that employee until January 1, 2002. A payor who used the High-Low Substantiation Method of section 5 of Rev. Proc. 2000–39 for an employee during the first 9 months of calendar year 2001 must continue to use the High-Low Substantiation Method for the remainder of calendar year 2001 for that employee. A payor described in the previous sen

tence may use the rates and high-cost localities published in section 5 of Rev. Proc. 2000–39, in lieu of the updated rates and high-cost localities provided in section 5 of this revenue procedure, for travel on or after October 1, 2001, and before January 1, 2002, if those rates and localities are used consistently during this period for all employees reimbursed under this method.