OUR THOUGHTS ON:

IRS Terminates Use of High-Low Method for Substantiating Travel Expenses

Tax

By Christopher Dingman

In 2010, the Internal Revenue Service issued Revenue Procedure 2010-39, requesting feedback on whether there was a continuing need for the high-low method of substantiating lodging, meals and other incidental expenses paid by an employee while traveling. Since the IRS did not receive any feedback on Revenue Procedure 2010-39, on July 19, 2011, it issued Announcement 2011-42 in which it communicated that it was discontinuing the high-low method of substantiating travel expenses under Internal Revenue Code Section 274(d).

Previously, the high-low method was a way for employers to reimburse their employees for lodging, meals and other incidental expenses incurred while traveling, without the need for an employee to document and substantiate all actual expenses. Instead of being reimbursed for actual expenses incurred, an employee received one of two per diem rates based upon the location of travel. The IRS annually published the areas and rates paid for travel to a "high-cost locality," along with a separate per diem rate for all other areas within the continental United States (the "low-cost locality").

Employers that are using the high-low method can switch to the Continental United States (CONUS) rates in future tax years. The CONUS method uses per diem rates for over 400 localities in the United States, which may require an employer to keep more detailed records for the reimbursement of employees. Employers should watch for further IRS guidance this year regarding documentation of lodging, meals and other incidental expenses.

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