Truckers' expense allowance subject to 50% deduction limit.

• Author: O'Driscoll, David

The Tax Court held that, under applicable revenue procedures, the entire per-diem travel allowance paid by a trucking company to its drivers was subject to the 50% deduction limit on meals and entertainment expenses, because it was computed on the same basis as wages.

P, a trucking company, compensated its drivers at a rate of 25-32 cents per mile and paid its drivers a per-diem allowance of 9 cents per mile. The per-diem was intended to reimburse drivers for travel expenses; drivers were flee to spend the per-diem in any manner they chose. However, the per-diem was insufficient to pay for motel monks in addition to meals. P's per-diem allowance plan was similar to the majority of such plans used by other companies in the trucking industry.

Law

Sec. 274(n)(1) allows a taxpayer to deduct only 50% of an otherwise allowable deduction fur meals or business entertainment. The issue is whether this 50% limit applies to the full amount of per-diem allowances P paid to its drivers.

It is undisputed that the per-diem allowances are computed on the same basis as the drivers' wages (i.e., on the basis of miles driven). Hence, Section 4.02 of the applicable revenue procedures (Rev. Procs. 94-77, 96-28 and 96-64) treats the per-diem allowances as being paid only for meals and incidental expenses (M&IE). Under Section 4.02 of the revenue procedures, the expenses covered by the per-diem allowance are deemed substantiated in an amount equal to the lesser of the per-diem allowance or the Federal M&IE rate. Under Section 6.05, because the per-diem allowances are deemed paid only for M&IE, an amount equal to the lesser of the per-diem allowance or the Federal M&IE rate is treated as an expense for food and beverages and, thus, subject to the 50% limit. The average daily per-diem allowance P paid was less than the Federal M&IE rate; accordingly, under Section 6.05, the full amount of the per-diem payments is treated as being for food and beverages and, thus, subject to the Sec. 274(n) 50% limit.

Rev. Procs'. Validity

P contends that the revenue procedures are invalid insofar as they operate (in Section 4.02) to characterize the per-diem payments as being solely for M&IE and (in Section 6.05) to apply the Sec. 274(n) limits to the full amount of the per-diem payments. However, for the reasons stated in Beech Trucking Co., 118TC 428 (2002), Section 4.02(5) is valid. The revenue procedures are elective provisions that provide deemed substantiation in lieu of...