[Federal Register Volume 67, Number 218 (Tuesday, November 12, 2002)]
[Rules and Regulations]
[Pages 68512-68513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-28543]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9020]
RIN 1545-BB19


Substantiation of Incidental Expenses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains amendments to regulations relating to 
the requirement to substantiate business expenses for traveling 
expenses while away from home. The regulations affect taxpayers who 
deduct expenses for incidental expenses while traveling away from home. 
The text of the temporary regulations also serves as text for the 
proposed regulations set forth in the notice of proposed rulemaking on 
this subject in the Proposed Rules section in this issue of the Federal 
Register.

DATES: Effective Date: These regulations are effective November 12, 
2002.
    Applicability Date: For dates of applicability, see Sec.  1.274-
5T(m).

FOR FURTHER INFORMATION CONTACT: John Moriarty (202) 622-4930 (not a 
toll free call).

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 deductions under section 162 
or 212 for any traveling expense (including meals and lodging) while 
away from home. Under section 274(d), 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 1.274-5(j)(1) of the regulations permits the 
Commissioner to establish a method under which a taxpayer may 
substantiate the amount of meal expenses paid or incurred while 
traveling away from home by means of

[[Page 68513]]

an allowance in lieu of substantiating the actual cost of meals.
    Under this authority, the Commissioner has provided a method for 
taxpayers to substantiate deductible costs of business meal and 
incidental expenses while away from home by means of an allowance. See 
Rev. Proc. 2001-47 (2001-42 I.R.B. 332). These temporary regulations 
amend Sec.  1.274-5T to authorize the Commissioner to establish a 
method under which a taxpayer may substantiate the amount of incidental 
expenses paid or incurred while traveling away from home by means of an 
allowance in lieu of substantiating the actual cost. The taxpayer will 
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.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based upon the fact that these regulations do not require a collection 
of information and do not impose any new or different requirements on 
small entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, these 
temporary regulations will be submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on their 
impact.

Drafting Information

    The principal author of these regulations is John Moriarty, Office 
of Associate Chief Counsel (Income Tax & 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

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

    Authority: 26 U.S.C. 7805 * * *
    Section 1.274-5 also issued under 26 U.S.C. 274(d). * * *


    2. Section 1.274-5 is amended by adding paragraph (j)(3) to read as 
follows:


Sec.  1.274-5  Substantiation requirements.

* * * * *
    (j) * * *
    (3) [Reserved]. For further guidance, see Sec.  1.274-5T(j)(3).
* * * * *

    3. Section 1.274-5T is amended by revising paragraph (j) and the 
last sentence of paragraph (m) to read as follows:


Sec.  1.274-5T  Substantiation requirements (temporary).

* * * * *
    (j)(1) and (2) [Reserved]. For further guidance, see Sec.  1.274-
5(j)(1) and (2).
    (3) Incidental expenses while traveling away from home. The 
Commissioner may establish a method under which a taxpayer may use a 
specified amount or amounts for incidental expenses paid or incurred 
while traveling away from home in lieu of substantiating the actual 
cost of incidental expenses. The taxpayer will 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.
* * * * *
    (m) * * * Paragraph (j)(3) of this section applies to expenses paid 
or incurred after September 30, 2002.

Robert E. Wenzel,
Deputy Commissioner of Internal Revenue.
    Approved: October 31, 2002.
Pamela F. Olson,
Assistant Secretary of the Treasury.
[FR Doc. 02-28543 Filed 11-8-02; 8:45 am]
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