SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2004–60, 2004–42 I.R.B. 682 (which supersedes Rev. Proc. 2003–80, 2003–2 C.B. 1037), revising the high-low rates in section 5 to conform to changes to the per diem rates released by the General Services Administration (GSA) on October 5, 2004, that are retroactively effective as of October 1, 2004. See 69 Fed. Reg. 60,152 (Oct. 7, 2004). As a result of these changes, this revenue procedure revises the high and low rates contained in section 5.02 from $199 to $204 and from $127 to $129, respectively. In addition, section 5.04 of this revenue procedure describes changes to the list of high-cost localities. This revenue procedure also revises the description of incidental expenses in section 3.02(3) relating to transportation between places of lodging or business and places where meals are taken to conform to the Federal Travel Regulations as codified in the Code of Federal Regulations.

This revenue procedure provides rules under which 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 are deemed substantiated under

§ 1.274–5 of the Income Tax Regulations when a payor (the employer, its agent, or a third party) provides a per diem allowance under a reimbursement or other expense allowance arrangement to pay for the expenses. This revenue procedure provides an optional method for employees and self-employed individuals who pay or incur meal costs to use in computing the deductible costs of business meal and incidental expenses paid or incurred while traveling away from home. This revenue procedure also provides an optional method for use in computing the deductible costs of incidental expenses paid or incurred while traveling away from home by employees and self-employed individuals who do not pay or incur meal costs and who are not reimbursed for the incidental expenses. Use of a method described in this revenue procedure is not mandatory, and a taxpayer may use actual allowable expenses if the taxpayer maintains adequate records or other sufficient evidence for proper substantiation. This revenue procedure does not provide rules under which the amount of an employee’s lodging expenses will be deemed substantiated when a payor provides an allowance to pay for those expenses but not meal and incidental expenses.