Tax court backs IRS rules on lodging, meal deductions Truckers' food - and lodging - expenses have been on the minds of both the U.S. Tax Court and the Internal Revenue Service (IRS) lately.
The Tax Court dished out four pertinent rulings, although only one involved trucking directly. That case involved an owner-operator who tried to deduct the federal per diem rate set by the IRS for lodging, plus meals and incidental expenses (M&IE). The IRS challenged the lodging portion, pointing out that self-employed taxpayers can deduct M&IE under simplified rules but must keep receipts for lodging expenses. The court agreed with the IRS. A month later, another Tax Court judge also ruled that a self-employed individual was not entitled to use the per diem method in place of documenting lodging expenses.
Meals are deductible only when they are purchased in connection with business travel "away from home." In the trucking case, the IRS disallowed deductions the driver claimed for meals when he slept overnight near the carrier's terminal instead of going to his house, an hour away, on the grounds that the driver was not away from home. The court again sided with the IRS, citing earlier Tax Court rulings that a "home" for purposes of the meal deduction means the vicinity of the taxpayer's principal place of business, not his principal residence.
In a third setback, the owner-operator was told he could not claim a home-office deduction because "it is evident that the most important aspects, as well as a substantial majority," of his business activity was performed outside the home.
In two separate cases, a Tax Court judge ruled that ship captains may use the per diem rate to claim incidental expenses, even when their meals are provided by their employer. The IRS had maintained that incidental expenses had to be fully documented unless the taxpayer was also eligible for the meal portion of the M&IE deduction. This scenario is rare in trucking but might arise if the carrier finds it more convenient to provide drivers with actual meals at certain locations rather than meal allowances.
The IRS is preparing its annual update of the per diem rates and the special M&IE rate for the transportation industry. This year there may be a difference, however. That's because the agency that sets per diems for federal employees and contractors has switched to a fiscal-year period (October 1-September 30) for its rates. Of the rates applicable October 1, 2000, 30% increased and 27% decreased from the January 2000 schedule, according to Government Executive magazine.
The IRS allowed taxpayers to choose either the October or January list of rates for the last quarter of 2000. The choice creates a planning opportunity but also adds complexity to what is already a major paperwork burden for those who track lodging and M&IE city by city rather than using a single nationwide rate.
The bottom line: Congress gets the headlines when it alters meal deductions, but each branch of government has a chance to change, or at least reinterpret, the rules at any time. Readers are welcome to e-mail me if they want citations to the Tax Court cases or want to be notified of changes in law or IRS rules on meal deductions.