SECTION 2. BACKGROUND

.01 Section 162(a) of the Internal Revenue Code allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on a trade or business. Under this section, family day care providers may deduct the cost of food provided to eligible children in the family day care. For family day care providers who receive reimbursements from a sponsor under the Child and Adult Care Food Program (CACFP) of the Department of Agriculture, only the portion of the cost of food, if any, that exceeds the reimbursements is deductible. Under § 262, however, no portion of the cost of food provided to the family day care provider’s family, including food consumed by the provider or the provider’s own children, is deductible.

.02 Section 6001 provides that every person liable for federal income tax shall keep such records and comply with such rules as the Commissioner of Internal Revenue prescribes. Section 1.6001–1(a) of the Income Tax Regulations provides that every person must keep records to substantiate the amount of any deduction.

.03 Section 7602(a) provides that the Commissioner may examine any books, pa

pers, records, or other data that may be relevant to ascertaining the correctness of any return, making a return where none has been made, or determining the liability of any person for any internal revenue tax.

.04 Under §§ 162 and 6001, family day care providers must keep records that substantiate deductions for food provided to eligible children in the family day care. Because family day care providers often purchase food that is used for their own families as well as in carrying on their family day care business, they may have difficulty substantiating the portion of the cost of food that is attributable to their family day care business. Additionally, it is burdensome for family day care providers to keep receipts for all food purchased during the taxable year for both the family day care and their own family’s personal use. To minimize disputes concerning the records family day care providers must keep to substantiate their deductible food cost, and to reduce burden by eliminating the need to keep all receipts for food purchased during the taxable year, the Internal Revenue Service will permit family day care providers to use the standard meal and snack rates provided in this revenue procedure to compute the deductible cost of food in lieu of using actual costs. A family day care provider who complies with all the provisions of this revenue procedure will be deemed to meet the substantiation requirements of § 6001 and the regulations thereunder for the purpose of computing the deductible cost of food provided to eligible children in the family day care.