Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 62.—Adjusted Gross Income Defined

26 CFR 1.62–2: Reimbursements and other ex- pense allowance arrangements.

Rules are provided under which a reimbursement or other expense allowance arrangement for the cost of lodging, meal, and incidental expenses, or of meal and incidental expenses, incurred by an employee while traveling away from home will satisfy the requirements of § 62(c) of the Code as to substantiation of the amount of the expenses. See Rev. Proc. 2002-63, page 691.

Section 162.—Trade or Business Expenses

26 CFR 1.162–17: Reporting and substantiation of certain business expenses of employees.

Rules are provided for substantiating the amount of a deduction of an expense for meal and incidental expenses, or for incidental expenses only, incurred while traveling away from home. See Rev. Proc. 2002–63, page 691.

Section 267.—Losses, Expenses, and Interest With Respect to Transactions Be- tween Related Taxpayers

26 CFR 1.267(a)–1: Deductions disallowed.

When a payor provides a per diem allowance to an employee who is a related party, the rules provided for the deemed substantiation to the payor of the amount of the employee’s ordinary and necessary business expenses for lodging, meal, and inci

dental expenses incurred while traveling away from home do not apply. See Rev. Proc. 2002–63, page 691.

Section 274.—Disallowance of Certain Entertainment, etc., Expenses

26 CFR 1.274–5: Substantiation requirements.

Rules are provided for an optional method for substantiating the amount of ordinary and necessary business expenses of an employee for lodging, meal, and incidental expenses, or for meal and incidental expenses, incurred while traveling away from home when a payor provides a per diem allowance under a reimbursement or other expense allowance arrangement. Rules are alo provided for an optional method for employees and self-employed individuals to use in computing the deductible costs of business meal and incidental expenses, or incidental expenses only, paid or incurred while traveling away from home. See Rev. Proc. 2002-63, page 691.

Section 446.—General Rule for Methods of Accounting

26 CFR 1.446–1: General rule for methods of accounting.

A safe harbor method of accounting is provided for track structure expenditures paid or incurred by Class II or III railroads, as well as procedures for automatic consent to change to this method. See Rev. Proc. 2002–65, page 700.

Section 472.—Last-in, First-out Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department stores. The August 2002 Bureau of Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in, first-out inventory methods for valuing inventories for tax years ended on, or with reference to, August 31, 2002.

Rev. Rul. 2002–64

The following Department Store Inventory Price Indexes for August 2002 were issued by the Bureau of Labor Statistics. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the Income Tax Regulations and Rev. Proc. 86– 46, 1986–2 C.B. 739, for appropriate application to inventories of department stores employing the retail inventory and last-in, first-out inventory methods for tax years ended on, or with reference to August 31, 2002.

The Department Store Inventory Price Indexes are prepared on a national basis and include (a) 23 major groups of departments, (b) three special combinations of the major groups — soft goods, durable goods, and miscellaneous goods, and (c) a store total, which covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent Change

Groups August

August August

2001 2002

2002

2001 to August 2002 ¹

from August

1. Piece Goods-------------------------------------------------------------- 485.7 481.8 - 0.8
2. Domestics and Draperies ---------------------------------------------- 591.8 577.9 - 2.3
3. Women’s and Children’s Shoes--------------------------------------- 655.4 634.4 - 3.2
4. Men’s Shoes ------------------------------------------------------------- 856.4 892.1 4.2
5. Infant’s Wear------------------------------------------------------------- 609.5 600.1 - 1.5
6. Women’s Underwear --------------------------------------------------- 567.5 532.7 - 6.1
7. Women’s Hosiery ------------------------------------------------------- 354.8 342.7 - 3.4
8. Women’s and Girl’s Accessories ------------------------------------- 547.2 523.9 - 4.3
9. Women’s Outerwear and Girls’ Wear-------------------------------- 361.6 361.5 0.0

2002–41 I.R.B. 688 October 15, 2002

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Percent Change

Groups August

August August

2001 2002

2002

2001 to August 2002 ¹

from August

10. Men’s Clothing ---------------------------------------------------------- 579.2 563.8 - 2.7
11. Men’s Furnishings ------------------------------------------------------ 583.9 589.4 0.9
12. Boys’ Clothing and Furnishings -------------------------------------- 469.2 439.2 - 6.4
13. Jewelry-------------------------------------------------------------------- 936.3 887.0 - 5.3
14. Notions-------------------------------------------------------------------- 793.0 793.2 0.0
15. Toilet Articles and Drugs ---------------------------------------------- 969.9 969.2 - 0.1
16. Furniture and Bedding ------------------------------------------------- 633.9 623.9 - 1.6
17. Floor Coverings --------------------------------------------------------- 623.8 621.3 - 0.4
18. Housewares--------------------------------------------------------------- 767.6 749.4 - 2.4
19. Major Appliances ------------------------------------------------------- 226.9 221.8 - 2.2
20. Radio and Television --------------------------------------------------- 53.4 47.9 - 10.3
21. Recreation and Education ² --------------------------------------------- 89.3 85.7 - 4.0
22. Home Improvements ² -------------------------------------------------- 125.8 125.4 - 0.3
23. Auto Accessories ² ------------------------------------------------------- 109.4 111.8 2.2

Groups 1 - 15: Soft Goods ----------------------------------------------------- 575.5 565.9 - 1.7 Groups 16 - 20: Durable Goods----------------------------------------------- 421.8 408.4 - 3.2 Groups 21 - 23: Misc. Goods ² ------------------------------------------------- 98.2 96.2 - 2.0 Store Total ³ --------------------------------------------------------------- 518.8 508.3 - 2.0

1Absence of a minus sign before the percentage change in this column signifies a price increase. 2Indexes on a January 1986=100 base. 3The store total index covers all departments, including some not listed separately, except for the following: candy, food, liquor, tobacco, and contract departments.

DRAFTING INFORMATION

The principal author of this revenue ruling is Michael Burkom of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Burkom at (202) 622–7718 (not a tollfree call).

Section 481.—Adjustments Required by Changes in Method of Accounting

26 CFR 1.481–1: Adjustments in general.

A safe harbor method of accounting is provided for track structure expenditures paid or incurred by Class II or III railroads, as well as procedures for automatic consent to change to this method. See Rev. Proc. 2002-65, page 700.

October 15, 2002 689 2002–41 I.R.B.