[Federal Register Volume 63, Number 190 (Thursday, October 1, 1998)]
[Rules and Regulations]
[Pages 52600-52601]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26226]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8784]
RIN 1545-AV89


Substantiation of Business Expenses--Use of Mileage Allowances To 
Substantiate Automobile Expenses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary and final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains temporary and final regulations 
relating to the use of mileage allowances to substantiate automobile 
business expenses. The regulations affect payors who make payments and 
employees who receive payments under reimbursement or other expense 
allowance arrangements for the business use of an automobile.

DATES: Effective date: These regulations are effective October 1, 1998.
    Applicability date: These regulations apply to transportation 
expenses paid or incurred after December 31, 1997.

FOR FURTHER INFORMATION CONTACT: Donna M. Crisalli, (202) 622-4920 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Background and Explanation of Provisions

    Section 274(d) provides that a taxpayer is not allowed a deduction 
or credit for certain expenses unless the expense is substantiated. 
These substantiation requirements apply to the expenses of use of any 
listed property (defined in section 280F(d)(4)), which includes any 
passenger automobile and any other property used as a means of 
transportation. The Secretary may issue regulations that provide that 
some or all of the substantiation requirements will not apply to 
expenses that do not exceed a prescribed amount.
    Section 1.274(d)-1 provides, in part, that the Commissioner may 
prescribe rules under which mileage allowances reimbursing ordinary and 
necessary expenses of local travel and transportation while traveling 
away from home will satisfy the substantiation requirements of 
Sec. 1.274-5T(c), and the requirements of an adequate accounting to the 
employer for purposes of Sec. 1.274-5T(f)(4). However, Sec. 1.274(d)-
1(a)(3) provides that such mileage allowances are available only to the 
owner of a vehicle.
    New Sec. 1.274(d)-1T applies these substantiation rules to mileage 
allowances for business use of an automobile after December 31, 1997, 
without the limitation in Sec. 1.274(d)-1(a)(3) that a mileage 
allowance is available only to the owner of a vehicle. See Rev. Proc. 
97-59 (1997-52 I.R.B. 24), for rules that implement these regulations. 
The regulations also adopt new Sec. 1.62-2T(e)(2) to incorporate this 
new rule.

Special Analyses

    It has been determined that these temporary and final regulations 
are not a significant regulatory action as defined in EO 12866. 
Therefore, a regulatory assessment is not required. It also has been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations, and, because the 
regulations do not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, these 
temporary and final regulations will be submitted to the Chief Counsel 
for Advocacy of the Small Business Administration for comment on their 
impact on small business.

Drafting Information

    The principal authors of these regulations are Edwin B. Cleverdon 
and Donna M. Crisalli of the Office of the Assistant Chief Counsel 
(Income Tax and Accounting). However, other personnel from the IRS and 
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
entries in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *

    Section 1.274(d)-1 also issued under 26 U.S.C. 274(d).
    Section 1.274(d)-1T also issued under 26 U.S.C. 274(d). * * *

Par. 2. In Sec. 1.62-2, paragraph (m) is amended by adding a 
sentence at the end of the paragraph to read as follows:


Sec. 1.62-2  Reimbursement and other expense allowance arrangements.

* * * * *
    (m) * * * Paragraph (e)(2) of this section applies to payments made 
under reimbursement or other expense allowance arrangements received by 
an employee with respect to expenses paid or incurred on or before 
December 31, 1997. For payments with respect to expenses paid or 
incurred after December 31, 1997, see Sec. 1.62-2T(e)(2).

Par. 3. Section 1.62-2T is added to read as follows:


Sec. 1.62-2T  Reimbursement and other expense allowance arrangements 
(temporary).

    (a) through (e)(1) [Reserved]. For further guidance, see Sec. 1.62-
2(a) through (e)(1).
    (e)(2) Expenses governed by section 274(d). For further guidance, 
see Sec. 1.62-2(e)(2) except that each reference to Sec. 1.274(d)-1 is 
deemed to be a reference to Sec. 1.274(d)-1T.
    (e)(3) through (l) [Reserved]. For further guidance, see Sec. 1.62-
2(e)(3) through (l).
    (m) Effective dates. Paragraph (e)(2) of this section applies to 
payments made under reimbursement or other expense

[[Page 52601]]

allowance arrangements received by an employee with respect to expenses 
paid or incurred after December 31, 1997. For payments with respect to 
expenses paid or incurred on or before December 31, 1997, see 
Sec. 1.62-2(e)(2).

Par. 4.  Section 1.274(d)-2 is amended by adding paragraph (b) to 
read as follows:


Sec. 1.274(d)-1  Substantiation requirements.

* * * * *
    (b) Effective date. This section applies to allowances described in 
paragraph (a)(2) of this section for expenses paid or incurred on or 
before December 31, 1997. For allowances for expenses paid or incurred 
after December 31, 1997, see Sec. 1.274(d)-1T.

Par. 5. Section 1.274(d)-1T is added to read as follows:


Sec. 1.274(d)-1T  Substantiation requirements (temporary).

    (a) (1) and (2) [Reserved]. For further guidance, see 
Sec. 1.274(d)-1(a)(1).
    (a)(3) [Reserved].
    (b) Effective date. This section applies to allowances described in 
Sec. 1.274(d)-1(a)(2) for expenses paid or incurred after December 31, 
1997. For allowances for expenses paid or incurred on or before 
December 31, 1997, see Sec. 1.274(d)-1(a).

    Approved: September 14, 1998.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-26226 Filed 9-30-98; 8:45 am]
BILLING CODE 4830-01-P