Per Diem allowed ?

Technical topics regarding tax preparation.
#1
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Taxpayer is paid by World Health Organization --on 1099 basis -- to establish safe drinking water in a third world country. She works in a specific city in Africa 8 months out of the year. Can she claim a per diem for her living food and hotel there (there is a clear daily per diem established for US government employees in this city) rather than her out of pocket costs? She is not a US government employee, however, it's a straight forward daily per diem. Would you claim it in this case?
 

#2
EZTAX  
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My first question would be about her tax home. Does she work in the states before and after her Africa gig? Or does she just do several gigs in Africa one after another?
 

#3
Doug M  
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Lodging would have to be at actual.

I am thinking temporary vs. indefinite if worker does not qualify for FEIE.
 

#4
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Why would her meals and lodging be deductible?
 

#5
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TaxMonkey wrote:Why would her meals and lodging be deductible?


The same reason that an over-the-road trucker's would be.
 

#6
Doug M  
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If taxpayer is on a temporary work assignment, expected to last less than 1 year, why not?
 

#7
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EZ: Taxpayer does not qualify for Foreign Earned Income Exclusion. Her tax home is Virginia, USA. She goes to Africa on a project basis for 6-8 months at a stretch.
Doug: Why would lodging have to be at actual, while meals and incidentals be otherwise? US state department lists per diems for both lodging and Meals/incidentals for the country where taxpayer is located. Also, I'm not sure what you mean by temporary versus indefinite and how this applies to the question at hand. Please explain.
Everyone: would you claim actual, or per diem, if this was your client?
 

#8
EZTAX  
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Anchorman - I was not thinking Foreign exclusion but rather if the client qualifies for any deduction at all.

Look up the rules regarding deducting travel away from home on a temporary job (expected to last less than 1 year) and also check out past discussions regarding tax home.

Depending on the circumstances your client might not have a tax home to be away from. If indeed they meet the requirements, I agree that only per diem on food. Lodging is actual unless under an accountable plan.
 

#9
WEISSEA  
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"Why would lodging have to be at actual, while meals and incidentals be otherwise?"

IRS Rev Proc 2007-63
Self-employed 1099 taxpayers and employees who are not covered by an expense reimbursement plan cannot use the per diem method that includes lodging. Must use actual lodging expenses. They can however, use the standard meal allowance or incidental expense only per diem.
 

#10
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Doug M wrote:If taxpayer is on a temporary work assignment, expected to last less than 1 year, why not?


Were you able to determine that from the content of the post?

I realize that later he stated "her tax home is in Virginia" and of course I would accept his judgement on the situation. But the OP suggests no other income than the 1099 from a city in Africa. If a person has income from only one source, I believe that it is reasonable to conclude that the location the work is performed in is indeed that person's tax home.

In order to be on a temporary work assignment, the taxpayer must have a regular place or work.
 

#11
Doug M  
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Were you able to determine that from the content of the post?


I did state that the client needs to clear the criteria of temporary vs. indefinite. OP did state the taxpayer "works in a specific city in Africa 8 months out of the year"
 

#12
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WEISSEA wrote: "Why would lodging have to be at actual, while meals and incidentals be otherwise?"

IRS Rev Proc 2007-63
Self-employed 1099 taxpayers and employees who are not covered by an expense reimbursement plan cannot use the per diem method that includes lodging. Must use actual lodging expenses. They can however, use the standard meal allowance or incidental expense only per diem.

WEISSEA - while I do not disagree with your conclusion, I am unable to find where in either IRS Rev Proc 2007-63 or Rev Proc 2011-47 where that exact wording is located. Have read and searched multiple times and no luck. Can you point me specifically where that is?

This relates to claiming lodging and travel expenses (actual and not the GSA per diem amounts) on either Schedule C or Federal form 2106 under a non accountable plan.

Have also come to the conclusion that if any reimbursement is included on a W-2 that the employee must claim actual expenses on the form 2106 and can not use the GSA per diem daily amounts (lodging - not the M&IE rates)- do others agree with this or disagree?

Same holds true on a Schedule C.
 

#13
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Okay - going to give this a push back up to the top of the page.

It's been hit close to 100 times since I posted and no one has posted a thing.

If you are familiar and dealt with this in an audit - that would be helpful. Mostly from the employee side and Form 2106. It's obvious that an IC has to use actual expenses for travel and lodging. Should be the exact same treatment for employee.

Researched this pro-bono for someone else. Have never really dealt with per diem for an employee before and looking for confirmation.
 

#14
Joan TB  
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Michaelstar-read Rev Proc 2007-63 carefully. There are subtle differences in the exact wording.

Section 4.01 only says employees (lodging, meals, IE)
Section 4.02 only says employees (meals, IE)
Section 4.03 says employees AND self-employed (meals, IE)
Section 4.05 says employees AND self-employed (IE)

Section 7.05 says employees with actual expenses greater than deemed substantiated expenses (= per diem) can deduct excess of the substantiated expenses (=actual) over the per diem.

Section 7.06 says employees not paid per diem can use per diem for SchA/2106 itemized deductions. (meals, IE)

Section 7.07 says employees not paid per diem can use per diem rates for Sch A/2106 itemized deductions (IE)

Section 7.08 says self-employed can use Sec 4.03 (meals, IE) on Sch C
Section 7.09 says self-employed can use Sec 4.05 (IE) on Sch C

If any of our learned colleagues spot errors, please let me know!
 

#15
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JoanTB – my question above was directed to lodging and travel expenses as it relates to the (GSA) federal per diem rate for taxpayers and employees who are not covered by an expense reimbursement plan.

Can an employee deduct the federal per diem rate for lodging on Form 2016 or are they required to take actual expenses (only) for lodging and travel.

Sec. 4.01 discusses the rules when a payor pays a “per diem allowance”. A per diem allowance does not necessarily equal the (GSA) federal per diem rates that are published.

Sec. 4.02 talks about “If a payor pays a per diem allowance”

Sec 7.05 references sections 4.01, 4.02 or 5 – that is when a payor pays a per diem allowance.

It seems clear that both an employee and/or a self-employed (SE) individual may deduct on form 2106 or Schedule C for a SE individual the M&IE per diem published rates as long as they can substantiate the elements of time, place and business purpose under Reg. 1.274-5T(c) Rules of substantiation. To me that is sort of a disconnect discussed in Reg. 1.274-5T(c)(2) Substantiation by adequate records as I would think one would also need actual receipts for meals and incidental expenses but Rev Proc 2007-63, Sec 4.03 seems to say otherwise. Without receipts for meals, how does one adequately substantiate the expense?

So lets go back to lodging and travel for taxpayers and employees who are not covered by an expense reimbursement plan which is where my question was directed.

The verbiage written by Weissea back in 2017 – “IRS Rev Proc 2007-63 - Self-employed 1099 taxpayers and employees who are not covered by an expense reimbursement plan cannot use the per diem method that includes lodging. Must use actual lodging expenses. They can however, use the standard meal allowance or incidental expense only per diem.”

I do not see that specifically written in Rev Proc 2007-47. Believe one needs to go to the Reg. and really follow the bouncing ball.

2007-47 Sec 7.05 - .05 “If the amount of the expenses that is deemed substantiated under the rules provided in section 4.01, 4.02, or 5 of this revenue procedure is less than the amount of the employee's business expenses for travel away from home, the employee may claim an itemized deduction for the amount by which the business travel expenses exceed the amount that is deemed substantiated, provided the employee substantiates all the business travel expenses (not just the excess over the federal per diem rate), includes on Form 2106, “Employee Business Expenses,” the deemed substantiated portion of the per diem allowance received from the payor, and includes in gross income the portion (if any) of the per diem allowance received from the payor that exceeds the amount deemed substantiated. See ' 1.274-5(f)(2)(iii).”

That section of the Regulation takes us to Reg. § 1.274-5T(b) Elements of an expenditure or use. Guess that is where I really find the answer – do you agree?

Again, I did not disagree with Weissea – just did not see his exact wording and was interested in where it was. Also read the Reg. § 1.274-5T so I believed I had my answer.

JoanTB – thank you for taking the time to post.
 

#16
Joan TB  
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It seems clear that both an employee and/or a self-employed (SE) individual may deduct on form 2106 or Schedule C for a SE individual the M&IE per diem published rates as long as they can substantiate the elements of time, place and business purpose under Reg. 1.274-5T(c) Rules of substantiation. To me that is sort of a disconnect discussed in Reg. 1.274-5T(c)(2) Substantiation by adequate records as I would think one would also need actual receipts for meals and incidental expenses but Rev Proc 2007-63, Sec 4.03 seems to say otherwise. Without receipts for meals, how does one adequately substantiate the expense?


The elements needed to substantiate travel, meals and IE are:
amount
time
place
business purpose

For amounts, in some instances the per diem rates can be used in lieu of actual amounts (so therefore, no further documentation of the amount would be needed.) For time, place and business purpose, a contemporaneous calendar or diary could provide the documentation.

Sec 4.01 and 4.02 says when EMPLOYEES can use per diem to substantiate amounts to the PAYOR (usually their employer) so that those payments to the employee is not part of the employee’s taxable compensation. The other elements of substantiation (time, place, business purpose) are still needed. Sec 4.03 and 4.05 says when EMPLOYEES and SE individuals can use per diem to substantiate the amounts for the deduction on SchA/Form 2106 or AGI/SchC. Again, the other 3 elements still need to be substantiated, but there are other means besides an actual receipt.

2007-47 Sec 7.05 - .05 “If the amount of the expenses that is deemed substantiated
under the rules provided in section 4.01, 4.02, or 5 of this revenue procedure is less than the amount of the employee's business expenses for travel away from home, the employee may claim an itemized deduction for the amount by which the business travel expenses exceed the amount that is deemed substantiated, provided the employee substantiates all the business travel expenses (not just the excess over the federal per diem rate), includes on Form 2106, “Employee Business Expenses,” the deemed substantiated portion of the per diem allowance received from the payor, and includes in gross income the portion (if any) of the per diem allowance received from the payor that exceeds the amount deemed substantiated. See ' 1.274-5(f)(2)(iii).”

Think of the phrase “deemed substantiated” as one word, and it means using the appropriate per diem method for the amount instead of the actual amount, and it does not mean the same as the word “substantiated” used on its own.

“provided the employee substantiates all the business travel expenses” means provide adequate documentation for all the elements, meaning amount, time, place, & business purpose which precludes the use of a per diem rate for the amount, meaning you have to use the actual amount and have some sort of documentation to prove that actual amount.

The exact wording to answer your question is there, you just have to read the EXACT WORDING.
 

#17
Doug M  
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So lets go back to lodging and travel for taxpayers and employees who are not covered by an expense reimbursement plan which is where my question was directed.

Without receipts for meals, how does one adequately substantiate the expense?


First you establish that you are traveling away from your tax home. Most people, pretty easy to do. Usually overnite. So, if you qualify, the meals part is easy. You don't need receipts, unless you have expenses greater than the per diem rates and you are going to deduct actual. Why do you need meal receipts if you are claiming per diem?

There are a multitude of cites where lodging is actual. Look at pub 469. Look at all the other tax pros giving you advice.

Can an employee deduct the federal per diem rate for lodging on Form 2016 or are they required to take actual expenses (only) for lodging and travel.


Do you think you need to be a federal EE to use the CONUS tables?
 


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