SECTION 5. HIGH-LOW

SUBSTANTIATION METHOD

.01 In general . If a payor pays a per diem allowance in lieu of reimbursing ac

away from home, employees and self-employed individuals who pay or incur meal expenses may use an amount computed at the federal M&IE rate for the locality of travel for each calendar day (or partial day) the employee or self-employed individual is away from home. This amount will be deemed substantiated for purposes of paragraphs (b)(2) and (c) of § 1.274–5, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel for that day (or partial day) in accordance with those regulations. See section 6.05(1) of this revenue procedure for rules related to the application of the limitation under § 274(n) to amounts determined under this section 4.03. See section 4.05 of this revenue procedure for a method for substantiating incidental expenses that may be used by employees or self-employed individuals who do not pay or incur meal expenses.

.04 Special rules for transportation in- dustry .

(1) In general . This section 4.04 applies to (a) a payor that pays a per diem allowance only for meal and incidental expenses for travel away from home as described in section 4.02 of this revenue procedure to an employee in the transportation industry, or (b) an employee or self-employed individual in the transportation industry who computes the amount allowable as a deduction for meal and incidental expenses for travel away from home in accordance with section 4.03 of this revenue procedure.

(2) Transportation industry defined . For purposes of this section 4.04, an employee or self-employed individual is in the transportation industry only if the employee’s or individual’s work (a) is of the type that directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and (b) regularly requires travel away from home which, during any single trip away from home, usually involves travel to localities with differing federal M&IE rates. For purposes of the preceding sentence, a payor must determine that an employee or a group of employees is in the transportation industry by using a method that is consistently applied and in accordance with reasonable business practice.

(3) Rates . A taxpayer described in section 4.04(1) of this revenue procedure may treat $52 as the federal M&IE rate for any

CONUS locality of travel, and $58 as the federal M&IE rate for any OCONUS locality of travel. A payor that uses either (or both) of these special rates with respect to an employee must use the special rate(s) for all amounts subject to section 4.02 of this revenue procedure paid to that employee for travel away from home within CONUS and/or OCONUS, as the case may be, during the calendar year. Similarly, an employee or self-employed individual that uses either (or both) of these special rates must use the special rate(s) for all amounts computed pursuant to section 4.03 of this revenue procedure for travel away from home within CONUS and/or OCONUS, as the case may be, during the calendar year. See section 4.04(6) of this revenue procedure for transition rules.

(4) Periodic rule . A payor described in section 4.04(1) of this revenue procedure may compute the amount of the employee’s expenses that is deemed substantiated under section 4.02 of this revenue procedure periodically (not less frequently than monthly), rather than daily, by comparing the total per diem allowance paid for the period to the sum of the amounts computed either at the federal M&IE rate(s) for the localities of travel, or at the special rate described in section 4.04(3), for the days (or partial days) the employee is away from home during the period.

(5) Examples . (a) Example 1 . Taxpayer, an employee in the transportation industry, travels away from home on business within CONUS on 17 days (including partial days) during a calendar month and receives a per diem allowance only for meal and incidental expenses from a payor that uses the special rule under section 4.04(3) of this revenue procedure. The amount deemed substantiated under section 4.02 of this revenue procedure is equal to the lesser of the total per diem allowance paid for the month or $884 (17 days at $52 per day).

(b) Example 2 . Taxpayer, a truck driver employee in the transportation industry, is paid a “cents-permile” allowance that qualifies as an allowance paid under a flat rate or stated schedule as defined in section 3.03 of this revenue procedure. Taxpayer travels away from home on business for 10 days. Based on the number of miles driven by Taxpayer, Taxpayer’s employer pays an allowance of $500 for the 10 days of business travel. Taxpayer actually drives for 8 days, and does not drive for the other 2 days Taxpayer is away from home. Taxpayer is paid under the periodic rule used for transportation industry employers and employees in accordance with section 4.04(4) of this revenue procedure. The amount deemed substantiated is the full $500 because that amount does not exceed $520 (ten days away from home at $52 per day).

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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(3) of this revenue procedure), the amount of the high and low rates that is treated as paid for meals is $58 for a high-cost locality and $45 for any other locality within CONUS.

.03 High-cost localities . The following localities have a federal per diem rate of $194 or more, and are high-cost localities for all of the calendar year or the portion of the calendar year specified in parentheses under the key city name:

tual 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 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 that day or the amount computed at the rate set forth in section 5.02 of this revenue procedure for the locality of travel for that 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 substantia

tion 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 meal and incidental expenses only per diem substantiation method provided in section 4.02 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 $237 for travel to any “highcost locality” specified in section 5.03 of this revenue procedure, or $152 for travel to any other locality within CONUS. The high or low rate, as appropriate, applies

Key City County or other defined location

Arizona

Phoenix/Scottsdale Maricopa (January 1-March 31) Sedona City Limits of Sedona (March 1-April 30)

California

Napa Napa Palm Springs Riverside (January 1-April 30) San Diego San Diego San Francisco San Francisco Santa Barbara Santa Barbara Santa Monica City limits of Santa Monica South Lake Tahoe El Dorado (December 1-March 31) Yosemite National Park Mariposa

Colorado

Aspen Pitkin (December 1-April 30) Crested Butte/Gunnison Gunnison (December 1-March 31) Silverthorne/Breckenridge Summit (December 1-March 31) Steamboat Springs Routt (December 1-February 29) Telluride San Miguel (October 1-March 31) Vail Eagle

District of Columbia

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

2007–42 I.R.B. 813 October 15, 2007

Key City County or other defined location

Florida

Fort Lauderdale Broward (October 1-April 30) Fort Walton Beach/De Funiak Springs Okaloosa and Walton (June 1-July 31) Key West Monroe Miami Miami-Dade (October 1-February 29) Naples Collier (February 1-March 31) Palm Beach

Palm Beach Boca Raton, Delray Beach, Jupiter, Palm

(January 1-March 31) Beach Gardens, Palm Beach, Palm Beach

Shores, Singer Island and West Palm Beach Stuart Martin (February 1-March 31)

(January 1-March 31)

Illinois

Chicago Cook and Lake

Maryland

(For the counties of Montgomery and Prince George’s, see District of Columbia) Baltimore City Baltimore Cambridge/St. Michaels Dorchester and Talbot (April 1-August 31) Ocean City Worcester (June 1-August 31)

Massachusetts

Boston/Cambridge Suffolk, City of Cambridge Martha’s Vineyard Dukes (July 1-August 31) Nantucket Nantucket

Nevada

Incline Village/Crystal Bay/Reno/Sparks Washoe (June 1-August 31)

New Hampshire

Conway Caroll (July 1-August 31)

New York

Floral Park/Garden City/Glen Cove/Great Neck/Roslyn Nassau Manhattan The Boroughs of Manhattan, Brooklyn, the Bronx and Staten Island Queens Queens Saratoga Springs/Schenectady Saratoga and Schenectady (July 1-August 31) Tarrytown/White Plains/New Rochelle/Yonkers Westchester

Pennsylvania

Philadelphia Philadelphia

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Key City County or other defined location

Rhode Island

Jamestown/Middletown/Newport Newport (October 1-November 30 and February 1-September 30) Providence Providence

Utah

Park City Summit (January 1-March 31)

Virginia

(For the cities of Alexandria, Falls Church, and Fairfax, and the counties of Arlington and Fairfax, see District of Columbia) Loudon County Loudon Virginia Beach City of Virginia Beach (June 1-August 31)

Washington

Seattle King

Wisconsin

Lake Geneva Walworth (June 1-September 30)

Proc. 2006–41 for an employee during the first 9 months of calendar year 2007 must continue to use the high-low substantiation method for the remainder of calendar year 2007 for that employee. A payor described in the previous sentence may use the rates and high-cost localities published in section 5 of Rev. Proc. 2006–41, 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, 2007, and before January 1, 2008, if those rates and localities are used consistently during this period for all employees reimbursed under this method.