SECTION 4. PER DIEM

SUBSTANTIATION METHOD

.01 Per diem allowance . If a payor pays a per diem allowance in lieu of reimbursing actual lodging, meal, and incidental expenses incurred or to be incurred by an employee for travel away from home, 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 federal per diem rate (see section 3.02 of this revenue procedure) for the locality of travel for that day (or partial day, see section 6.04 of this revenue procedure).

.02 Meal and incidental expenses only per diem allowance . If a payor pays a per diem allowance only for meal and incidental expenses in lieu of reimbursing actual meal and incidental expenses incurred or to be incurred by an employee for travel away from home, the amount of the

October 18, 2010 461 2010–42 I.R.B.

under 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 self-employed 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 $59 as the federal M&IE rate for any CONUS locality of travel and $65 as the federal M&IE rate for any OCONUS locality of travel. A payor that uses either or both of these special rates for an employee must use the special rate(s) for all amounts deemed substantiated under section 4.02 of this revenue procedure paid to that employee for travel away from home within CONUS and/or OCONUS during the calendar year. Similarly, an employee or self-employed individual who uses either or both of these special rates must use the special rate(s) for all amounts deemed substantiated under section 4.03 of this revenue procedure for travel away from home within CONUS and/or OCONUS 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 for 16 days (including partial days) during a calendar month. A payor pays Taxpayer a per diem allowance for meal and incidental expenses only that the payor computes using section 4.04(3) of this revenue procedure and the method of proration described in section 6.04(2) 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 $944 (16 days at $59 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 Taxpayer drives, 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 $590 (ten days away from home at $59 per day).

(6) Transition rules . Under the calendar-year convention provided in section 4.04(3), a taxpayer who used the federal M&IE rates during the first 9 months of calendar year 2010 to substantiate the amount of an individual’s travel expenses under sections 4.02 or 4.03 of Rev. Proc. 2009–47 may not use, for that individual, the special transportation industry rates provided in this section 4.04 until January 1, 2011. Similarly, a taxpayer who used the special transportation industry rates during the first 9 months of calendar year 2010 to substantiate the amount of an individual’s travel expenses may not use, for that individual, the federal M&IE rates until January 1, 2011.

.05 Optional method for incidental ex- penses only deduction . Instead of using actual expenses in computing the amount allowable as a deduction for ordinary and necessary incidental expenses paid or incurred for travel away from home, employees and self-employed individuals who pay or incur incidental expenses but do not pay or incur meal expenses for a calendar day or partial day of travel away from home may use, for each calendar day or partial day the employee or self-employed individual is away from home, an amount computed at the rate of $5 per day for any CONUS or OCONUS locality of travel. This amount is deemed substantiated for purposes of § 1.274–5T(b)(2)(i) and (c), provided the employee or self-em

ployed 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 4.03 of this revenue procedure for a method that may be used by employees or self-employed individuals who pay or incur meal expenses. The method authorized by this section 4.05 may not be used by payors that use section 4.01, 4.02, or 5.01 of this revenue procedure, or by employees or self-employed individuals who use the method described in section 4.03 of this revenue procedure. See section 6.05(5) of this revenue procedure for rules related to the application of the § 274(n) limitation to amounts determined under this section 4.05.