SECTION 1. PURPOSE

This revenue procedure updates Rev. Proc. 2007–63, 2007–42 I.R.B. 809, and 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. In addition, this revenue procedure provides an optional method for employees and self-employed individuals who are not reimbursed to use in computing the amounts paid or incurred for business meal and incidental expenses, or for incidental expenses only if no meal expenses are paid or incurred, while traveling away from home. Use of a method described in this revenue procedure is not mandatory, and a taxpayer may use actual

subject to the possible existence (and exercise) of the mitigation provision described in section 2.06 of this revenue procedure, so long as auctions continue to fail (and the taxpayer does not direct Corporation X to purchase the security), the taxpayer will continue to receive the maximum payment rate specified by the terms of the auction rate security.

.05 In the event the auction rate-setting process begins to succeed during the Window Period, so long as the taxpayer does not direct Corporation X to purchase the security (and the taxpayer does not sell in the auction), the taxpayer’s return will fluctuate with that process, such that as the reset rates go up or down, this variation directly affects the taxpayer’s economic return. If the taxpayer continues to hold the security after the Window Period, the taxpayer’s entitlements are determined exclusively under the provisions of the auction rate security ( e.g., if rates go up or down, or the security becomes worthless, the taxpayer experiences the full economic impact). During the Window Period (and thereafter, if Corporation X does not purchase the security during the Window Period), the taxpayer is entitled to (1) exercise all voting rights associated with the security, and (2) sell the security to a third party. By its terms, the auction rate security is not redeemable on a fixed date (or, if it is, the redemption date is at least two years later than the end of the Window Period).

.06 The Settlement Offer may also contain a provision which has the effect of allowing Corporation X to mitigate its potential economic losses during the Window Period. If the taxpayer accepts a Settlement Offer with such a provision, Corporation X will be authorized to effect sales or dispositions of the security to the market during the Window Period (so long as the taxpayer receives the par amount of the security upon the sale or disposition). Thus, for example, if, during the Window Period, Corporation X finds a person willing to purchase an auction rate security with a par amount of $100x for $99x, Corporation X can purchase the security from the taxpayer for $100x, sell the security for $99x, and limit its economic loss to $1x (rather than risk a larger, or smaller, loss). If Corporation X buys the security under this provision, it will not hold the security for investment purposes.

.07 The Settlement Offer may also permit the taxpayer to elect to “borrow” (in form) the par amount of the auction rate security from Corporation X before the Window Period begins (or during the Window Period). In this case, the taxpayer’s obligation to return the cash amount advanced by Corporation X in the form of a “loan” is secured (in form) by the auction rate security. Taxpayers who accept the Settlement Offer are not required to make this election or otherwise participate in this feature of the Settlement Offer.