Prop. regs. allow taxpayers to deduct certain local lodging expenses.

• Author: Nevius, Alistair M.

The IRS issued proposed regulations that permit employees to treat certain expenses paid or incurred for local lodging as deductible business expenses (REG-137589-07).

Under Sec. 262(a), living expenses paid or incurred when not traveling away from home are considered nondeductible personal expenses. However, in certain circumstances, the proposed regulations will allow local lodging expenses paid or incurred in carrying on a taxpayer's trade or business to be deducted, depending on the facts and circumstances, one of which is whether the expense is incurred to satisfy a bona fide requirement imposed by the employer. Expenses that are lavish or extravagant under the circumstances will not qualify (Prop. Regs. Sec. 1.162-31(a)).

Prop. Regs. Sec. 1.162-31(b) contains a safe harbor (and numerous examples illustrating the safe harbor) allowing a deduction for expenses for local lodging to attend business meetings and conferences if:

* The lodging is necessary for the employee to participate fully in or be available for a bona fide business meeting, conference, training activity, or other business function;

* The lodging does not exceed five calendar days and does not occur more than once each calendar quarter;

* The employer requires the employee to remain at the activity or function overnight;

* The lodging is not extravagant or lavish and does not provide...