[Federal Register Volume 63, Number 190 (Thursday, October 1, 1998)]
[Proposed Rules]
[Pages 52660-52662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-26227]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-122488-97]
RIN 1545-AV87
Substantiation of Business Expenses--Use of Mileage Rates To
Substantiate Automobile Expenses
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations relating to the
use of mileage rates to substantiate automobile business expenses. The
regulations affect taxpayers who deduct expenses, and payors who make
payments and employees who receive payments under reimbursement or
other expense allowance arrangements, for the business use of an
automobile.
DATES: Written or electronically generated comments and requests for a
public hearing must be received by December 30, 1998.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, contact
Edwin B. Cleverdon or Donna M. Crisalli, (202) 622-4920 (not a toll-
free number).
ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-122488-97), room
5228, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. In the alternative, submissions may be hand
delivered between the hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-
122488-97), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC. Additionally, taxpayers may submit comments
electronically via INTERNET by selecting the ``Tax Regs'' option on the
IRS INTERNET site at: http://www.irs.ustreas.gov/prod/tax__regs/
comments.html.
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
[[Page 52661]]
(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 1.274-5T(b)(6) sets forth the elements of an expenditure or
use, i.e., the amount, time, and business purpose, that are required to
be substantiated with respect to listed property. 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.
Proposed Sec. 1.274-5(g) applies these substantiation rules to
mileage allowances for business use of an automobile without the
limitation in Sec. 1.274(d)-1(a)(3) that a mileage allowance is
available only to the owner of a vehicle. Proposed Sec. 1.274-5(j)(1)
continues to authorize the Commissioner to establish a method for
computing meal expenses while traveling away from home (see current
Sec. 1.274-5T(j)), while Sec. 1.274-5(j)(2) authorizes the Commissioner
to establish a method under which a taxpayer may use mileage rates to
determine the amount of the ordinary and necessary business expenses of
using an automobile for local transportation and transportation to,
from, and at the destination while traveling away from home in lieu of
substantiating the actual costs. The mileage rate method may include
appropriate limitations and conditions in order to reflect more
accurately automobile expenses over the entire period of usage. The
taxpayer would not, however, be relieved of substantiating the amount
of each business use (i.e., the business mileage) and the time and
business purpose of each use. See Rev. Proc. 97-59 (1997-52 I.R.B. 24),
for rules for using the mileage rate method. This proposed Sec. 1.274-
5(g), (j), and (m) supplement Sec. 1.274-5(c) and (f) as proposed on
March 25, 1997, in the Federal Register (62 FR 14051). Conforming
changes to Sec. 1.62-2 are also proposed.
Special Analyses
It has been determined that this notice of proposed rulemaking is
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, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.
Comments and Requests for a Public Hearing
Before adopting these proposed regulations as final regulations,
consideration will be given to any comments that are submitted timely
(and in the manner described in the ADDRESSES portion of this preamble)
to the IRS. All comments will be available for public inspection and
copying. A public hearing will be scheduled and held upon request by
any person who submits comments on the proposed rules. Notice of the
time and place for the hearing will be published in the Federal
Register.
Drafting Information
The principal authors of these proposed regulations are Edwin B.
Cleverdon and Donna M. Crisalli, Office of the Assistant Chief Counsel
(Income Tax and Accounting). However, personnel from other offices of
the IRS and Treasury Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. In Sec. 1.62-2, paragraph (e)(2) is revised to read as
follows:
Sec. 1.62-2 Reimbursement and other expense allowance arrangements.
* * * * *
(e) * * *
(2) Expenses governed by section 274(d). An arrangement that
reimburses travel, entertainment, use of a passenger automobile or
other listed property, or other business expenses governed by section
274(d) meets the requirements of this paragraph (e)(2) if information
sufficient to satisfy the substantiation requirements of section 274(d)
and the regulations thereunder is submitted to the payor. See
Sec. 1.274-5T. Under section 274(d), information sufficient to
substantiate the requisite elements of each expenditure or use must be
submitted to the payor. For example, with respect to travel away from
home, Sec. 1.274-5T(b)(2) requires that information sufficient to
substantiate the amount, time, place, and business purpose of the
expense must be submitted to the payor. Similarly, with respect to use
of a passenger automobile or other listed property, Sec. 1.274-5T(b)(6)
requires that information sufficient to substantiate the amount, time,
use, and business purpose of the expense must be submitted to the
payor. See Sec. 1.274-5(g), however, which grants the Commissioner
authority to prescribe rules permitting the amount of certain expenses
to be deemed substantiated to the payor (in lieu of substantiating the
actual amount of such expenses) by means of per diem or mileage rates
for travel away from home or transportation expenses. See also
Sec. 1.274-5(j)(1), which grants the Commissioner the authority to
establish a method under which a taxpayer may use a specified amount
for meals while traveling away from home in lieu of substantiating the
actual cost of meals, and Sec. 1.274-5(j)(2), which grants the
Commissioner the authority to establish a method under which a taxpayer
may use mileage rates to determine the amount of the ordinary and
necessary expenses of using an automobile for local transportation and
transportation to, from, and at the destination while traveling away
from home in lieu of substantiating the actual costs. Substantiation of
the amount of a business expense in accordance with rules prescribed
pursuant to the authority granted by Sec. 1.274-5(g) or (j) will be
treated as substantiation of the amount of such expense for purposes of
this section.
* * * * *
Sec. 1.62-2T [Removed]
Par. 3. Section 1.62-2T is removed.
Par. 4. Section 1.274-5 is added to read as follows:
Sec. 1.274-5 Substantiation requirements.
(a) through (f) [Reserved]. For further guidance, see Sec. 1.274-
5T(a) through (f).
[[Page 52662]]
(g) Substantiation by reimbursement arrangements or per diem,
mileage, and other traveling allowances--(1) In general. The
Commissioner may, in his or her discretion, prescribe rules in
pronouncements of general applicability under which allowances for
expenses described in paragraph (g)(2) of this section will, if in
accordance with reasonable business practice, be regarded as equivalent
to substantiation by adequate records or other sufficient evidence for
purposes of Sec. 1.274-5T(c) of the amount of such expenses and as
satisfying, with respect to the amount of such expenses, the
requirements of an adequate accounting to the employer for purposes of
Sec. 1.274-5T(f)(4). If the total allowance received exceeds the
deductible expenses paid or incurred by the employee, such excess must
be reported as income on the employee's return. See paragraph (j)(1) of
this section relating to the substantiation of meal expenses while
traveling away from home, and paragraph (j)(2) of this section relating
to the substantiation of expenses for the business use of an
automobile.
(2) Allowances for expenses described. An allowance for expenses is
described in this paragraph (g)(2) if it is a--
(i) Reimbursement arrangement covering ordinary and necessary
expenses of traveling away from home (exclusive of transportation
expenses to and from destination);
(ii) Per diem allowance providing for ordinary and necessary
expenses of traveling away from home (exclusive of transportation costs
to and from destination); or
(iii) Mileage allowance providing for ordinary and necessary
expenses of local transportation and transportation to, from, and at
the destination while traveling away from home.
(3) Limitation. For expenses paid or incurred on or before December
31, 1997, a mileage allowance described in paragraph (g)(2)(iii) of
this section is available only to the owner of a vehicle.
(h) and (i) [Reserved]. For further guidance, see Sec. 1.274-5T(h)
and (i).
(j) Authority for optional methods of computing certain expenses--
(1) Meal expenses while traveling away from home. The Commissioner may
establish a method under which a taxpayer may use a specified amount or
amounts for meals while traveling away from home in lieu of
substantiating the actual cost of meals. The taxpayer would not be
relieved of the requirement to substantiate the actual cost of other
travel expenses as well as the time, place, and business purpose of the
travel. See Sec. 1.274-5T(b)(2) and (c).
(2) Use of mileage rates for automobile expenses. The Commissioner
may establish a method under which a taxpayer may use mileage rates to
determine the amount of the ordinary and necessary expenses of using an
automobile for local transportation and transportation to, from, and at
the destination while traveling away from home in lieu of
substantiating the actual costs. Such method may include appropriate
limitations and conditions in order to reflect more accurately
automobile expenses over the entire period of usage. The taxpayer would
not be relieved of the requirement to substantiate the amount of each
business use (i.e., the business mileage), or the time and business
purpose of each use. See Sec. 1.274-5T(b)(2) and (c).
(k) and (l) [Reserved]. For further guidance, see Sec. 1.274-5T(k)
and (l).
(m) Effective date. Paragraphs (g) and (j) of this section apply to
expenses paid or incurred after December 31, 1997.
Sec. 1.274-5T [Amended]
Par. 5. Paragraphs (g) and (j) of Sec. 1.274-5T are removed and
reserved.
Sec. 1.274(d)-1 [Amended]
Par. 6. Section 1.274(d)-1 is amended by removing paragraph (a)(3).
Sec. 1.274(d)-1T [Removed]
Par. 7. Section 1.274(d)-1T is removed.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 98-26227 Filed 9-30-98; 8:45 am]
BILLING CODE 4830-01-U