SECTION 5. HIGH-LOW

SUBSTANTIATION METHOD

.01 In general . A payor that pays a per diem allowance in lieu of reimbursing actual expenses an employee pays or incurs or will pay or incur for travel away from home may use the high-low substantiation method described in this section 5 in lieu of the per diem substantiation method described in section 4.01 of this revenue procedure or the meal and incidental expenses only method described in section 4.02 of this revenue procedure. If a payor uses the high-low substantiation method, the amount of the expenses that is deemed substantiated for each calendar day is equal to the lesser of the actual per diem allowance for that day or the amount computed under section 5.02 of this revenue procedure. Employees and self-employed individuals may not use the high-low substantiation method in lieu of the meal and incidental expenses only deduction method described in section 4.03 of this revenue procedure.

.02 Application of high-low method . Under the high-low substantiation method, a high rate applies to localities designated as high-cost localities and a low rate applies to every other locality within CONUS (one high rate and one low rate for lodging, meal, and incidental expenses and one high rate and one low rate for meal and incidental expenses only). The high or low rates, as appropriate, apply as if they were the federal per diem rate or the federal M&IE rate for the locality of travel. The high and low rates, amounts treated as meal expenses for purposes of § 274(n), and a list of high-cost localities are published in an annual notice.

.03 Limitation . A payor that uses the high-low substantiation method for an employee must use that method for all amounts paid to that employee for travel away from home within CONUS during the calendar year. The payor may use any permissible method (actual expenses, the

per diem substantiation method described in section 4.01 of this revenue procedure, or the meal and incidental expenses only per diem substantiation method described in section 4.02 of this revenue procedure) to reimburse that employee for any OCONUS travel away from home.

.04 Transition rules . For travel in the last 3 months of a calendar year—

(1) A payor must continue to use the same method ( per diem method under sections 4.01 or 4.02 of this revenue procedure, or high-low method) for an employee as the payor used during the first 9 months of the calendar year; and

(2) A payor may use either the rates and high-cost localities in effect for the first 9 months of the calendar year or the updated rates and high-cost localities in effect for the last 3 months of the calendar year if the payor uses the same rates and localities consistently for all employees reimbursed under the high-low method.

.05 Examples . (1) Example 1 . Employer pays a per diem allowance for lodging, meal, and incidental expenses to Employee for travel away from home using the high-low substantiation method. Employee travels away from home for 5 full days to City A within CONUS. City A is listed as a high-cost locality. Employer reimburses employee at a rate of $225 per day for each of employee’s 5 days of travel. The per diem rate for a high-cost locality is $250. The amount deemed substantiated under section 5 of this revenue procedure is $225 per day (the lesser of the per diem allowance for each day ($225) or the per diem rate for a high-cost locality ($250)).

(2) Example 2 . Employer pays a per diem allowance for meal and incidental expenses only to Employee for travel away from home using the high-low substantiation method. Employee travels away from home to City B (within CONUS) each month of Year

1. For all of Year 1, Employer reimburses Employee at a rate of $50 per day for meal and incidental expenses only. For the first 9 months of Year 1, City B is listed as a high-cost locality. The M&IE rate is $60 for a high-cost locality and $45 for all other localities. For the last 3 months of Year 1, City B is not listed as a high-cost locality, and the M&IE rate for City B is $48. Employer chooses to use the rates and list of high-cost localities in effect during the first 9 months of Year 1 for the last 3 months of Year 1 (instead of the updated rates for the last 3 months of Year 1). If Employer uses the rates and high-cost localities in effect during the first 9 months of Year 1 for the last 3 months of Year 1 consistently for all employees, the amount deemed substantiated for Employee’s travel to City B during the last 3 months of Year 1 is $50, the lesser of the M&IE rate for a high-cost locality ($60) or the employee’s per diem allowance for each day ($50).

October 17, 2011 524 2011–42 I.R.B.