Pub 535

(This is the only passage on p. 8 about meals, but it doesn't seem entirely appropos. Is there some mistake here?)

You usually can deduct the cost of furnishing meals and lodging to your employees if the expense is an ordinary and
necessary business expense. Do not deduct the cost as employees' pay, but as an expense of operating your business.
For example, if you own a restaurant or operate a cafeteria for your employees, include in the cost of goods sold the
cost of food your employees eat. Similarly, if you rent or buy a house for an employee, you deduct the cost of insurance,
utilities, rent, and/or depreciation in each of those categories on your return.

You may have to include the value of meals or lodging in an employee's income. For meals, this depends on whether
you furnished them on your premises for your convenience. For lodging, it depends on whether you required it as a
condition of employment.

Pub 463

You generally can deduct a standard amount for your daily meals and incidental expenses (M&IE) while you are traveling away from home on business. Incidental expenses include, but are not limited to, your costs for the following items:

1. Laundry, dry cleaning, and pressing of clothing, and
2. Fees and tips for persons who provide services, such as food servers and luggage handlers.

Incidental expenses do not include taxicab fares or the costs of telegrams or telephone calls. In this publication, "standard meal allowance" refers to the federal rate for M&IE (meals and incidental expenses).

The standard meal allowance method is an alternative to the actual cost method. It allows you to deduct a set amount, depending on where and when you travel, instead of keeping records of your actual costs. If you use the standard meal allowance, you still must keep records to prove the time, place, and business purpose of your travel.

Who can use the standard meal allowance. You can use the standard meal allowance whether you are an employee or self-employed, and whether or not you are reimbursed for your traveling expenses. You cannot use the standard meal allowance, however, if you are related to your employer as defined next.

Related to employer. You are related to your employer if:

1. Your employer is your brother or sister, half-brother or half-sister, spouse, ancestor, or lineal descendant,
2. Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or
3. Certain fiduciary relationships exist between you and your employer involving grantors, trusts, beneficiaries, etc.

You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a family member or partner owns the stock.

Limit on standard meal allowance. If you are not reimbursed or if you are reimbursed under a nonaccountable plan for meal expenses, you can deduct only 50% of the standard meal allowance. If you are reimbursed under an accountable plan and you are deducting amounts that are more than your reimbursements, you can deduct only 50% of the excess amount. Accountable and nonaccountable plans are discussed in chapter 6.

Other expenses that can qualify for the standard meal allowance. You can use the standard meal allowance to prove meal expenses you incur when traveling in connection with investment and other income-producing property. You can also use it to prove meal expenses you incur when traveling for qualifying educational purposes. You cannot use the standard meal allowance to prove the amount of your meals if you are traveling for medical or charitable purposes.

Amount of standard meal allowance. The standard meal allowance is the federal M&IE rate. For travel in 1997, the rate was $30 a day for most of the United States. Some U.S. locations are designated as high-cost areas and qualifyied for higher standard meal allowances of $34, $38, or $42 a day.

If you travel to more than one location in one day, use the rate in effect for the area where you stop for sleep or rest. If you work in the transportation industry, however, see Special rate for transportation workers, later in this section.

Standard meal allowance for areas outside the continental United States. The standard meal allowance rates do not apply to travel in Alaska, Hawaii, or any other locations outside the continental United States. The federal per diem rates for these locations are published monthly in the Maximum Travel Per Diem Allowances for Foreign Areas. Your employer may have these rates available, or you can order by calling the Government Printing Office at 1-202-512-1800. Per diem rates are also available on the Internet at http://www.policyworks.gov/perdiem. You can access foreign per diem rates at:

http://www.state.gov/www/perdiems.

Special rate for transportation workers. You can use a special standard meal allowance if you work in the transportation industry. You are in the transportation industry if your work:

1. Directly involves moving people or goods by airplane, barge, bus, ship, train, or truck, and
2. Regularly requires you to travel away from home and, during any single trip, usually involves travel to areas eligible for different standard meal allowance rates.

If this applies to you, you can claim a $36 a day standard meal allowance ($40 for travel outside the continental United States).

Using the special rate for transportation workers eliminates the need for you to determine the standard meal allowance for every area where you stop for sleep or rest. If you choose to use the special rate for any trip, however, you must continue to use the special rate (and not use the regular standard meal allowance rates) for all trips you take that year.

Travel for days you depart and return. For both the day your travel begins and the day your travel ends, you must prorate the standard meal allowance. You can do so by one of two methods.

1. You can claim 3/4 of the standard meal allowance, or
2. You can use any method that you consistently apply and that is in accordance with reasonable business practice.

Example. Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a three-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. Jen's employer gave her a flat amount to cover her expenses and included it with her wages.

Under Method 1, Jen can claim 2 1/2 days of the standard meal allowance for Washington, DC: 3/4 of the daily rate for Wednesday and Friday (the days she departed and returned), and the full daily rate for Thursday.

Under Method 2, Jen could also use any method that she applies consistently and that is in accordance with reasonable business practice. For example, she could claim 3 days of the standard meal allowance even though a federal employee would be limited to only 2 1/2 days.

By keeping timely and accurate records, you will have support to show the IRS if your tax return is ever examined. Or, you will have proof of expenses that your employer may require if you are reimbursed under an accountable plan.

This section explains the items you need to prove depending on which expense you are deducting. It also discusses rules for the records you must keep. These rules may apply to more than one type of expense. The topics include:

• A discussion of adequate records,
• How to treat confidential information,
• When you need documentary evidence,
• Duplicate information,
• When to record information,
• When expenses must be kept separate,
• When expenses can be combined,
• What if your records are incomplete, and
• What if your return is examined.

Proof needed. You must be able to prove (substantiate) certain elements of expense to deduct travel, entertainment, business gift, and local transportation expenses. You cannot deduct amounts that you approximate or estimate.

Adequate records. You should keep adequate records that prove your expenses or have sufficient evidence that will support your own statement. Written evidence has considerably more value than oral evidence alone, and you must generally prepare a written record for it to be considered adequate. However, if you prepare a record in a computer memory device with the aid of a logging program, it is considered an adequate record.

You should keep the proof you need in an account book, diary, statement of expense, or similar record, and keep documentary evidence (such as receipts, canceled checks, or bills) that together will support each element of an expense. A receipt is ordinarily the best evidence to prove the amount of an expense. You cannot deduct amounts that are considered lavish or extravagant.

Confidential information. You do not need to put confidential information relating to an element of a deductible expense (such as the place, business purpose, or business relationship) in your account book, diary, or other record. However, you do have to record the information elsewhere at or near the time of the expense and have it available to fully prove that element of the expense.

Documentary evidence. You generally must have documentary evidence, such as receipts, canceled checks, or bills, to support your expenses. However, this evidence is not needed if any of the following apply:

1. You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan and you use a per diem allowance method that includes meals and/or lodging,
2. Your expense, other than lodging, is less than $75, or
3. You have a transportation expense for which a receipt is not readily available.

Accountable plans and per diem allowances are discussed later under Reimbursements.

Adequate evidence. Documentary evidence ordinarily will be considered adequate if it shows the amount, date, place, and essential character of the expense.

For example, a hotel receipt is enough to support expenses for business travel if it has:

1. The name and location of the hotel,
2. The dates you stayed there, and
3. Separate amounts for charges such as lodging, meals, and telephone calls.

A restaurant receipt is enough to prove an expense for a business meal if it has:

1. The name and location of the restaurant,
2. The number of people served, and
3. The date and amount of the expense.

If a charge is made for items other than food and beverages, the receipt must show that this is the case.

Canceled check. A canceled check, together with a bill from the payee, ordinarily establishes the cost. However, a canceled check by itself does not prove a business expense without other evidence to show that it was for a business purpose.

Proving business purpose. You must generally provide a written statement of the business purpose of an expense. However, the degree of proof varies according to the circumstances in each case. If the business purpose of an expense is clear from the surrounding circumstances, then you do not need to give a written explanation.

Duplicate information. You do not have to record information in your account book or other record that duplicates information shown on a receipt as long as your records and receipts complement each other in an orderly manner. You do not have to record amounts your employer pays directly for any ticket or other travel item. However, if you charge these items to your employer, through a credit card or otherwise, you must keep a record of the amounts you spend.

Timely recordkeeping. You do not need to write down the elements of every expense at the time of the expense. However, a record of the elements of an expense or of a business use made at or near the time of the expense or use, and supported by sufficient documentary evidence, has more value than a statement prepared later when generally there is a lack of accurate recall.

A log maintained on a weekly basis, which accounts for use during the week, is considered a timely record. An expense account statement you give your employer, client, or customer can also be considered a timely record. This is true if it is copied from your account book, diary, statement of expense, or similar record.

Separating expenses. Each separate payment usually is considered a separate expense. For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. You must record them separately in your records.

Allocating total cost. If you prove the total cost of travel or entertainment but you cannot prove how much it cost for each person, you must divide the cost among you and your guests to determine the business and nonbusiness cost. To do so, divide the total cost by the total number of persons. The result is the amount you use to figure your deductible expense for each qualifying person.

Combining items. You can make one daily entry for reasonable categories of expenses such as taxi fares, telephone calls, or other incidental travel costs. Meals should be in a separate category. You can include tips with the costs of the services you received.

Expenses of a similar nature occurring during the course of a single event are considered a single expense. For example, if during entertainment at a cocktail lounge, you pay separately for each serving of refreshments, the total expense for the refreshments is treated as a single expense.

Incomplete records. If you do not have complete records to prove an element of an expense, then you must prove the element by:

1. Your own statement, whether written or oral, that contains specific information about the element, and
2. Other supporting evidence that is sufficient to establish the element.

If your return is examined. If your return is examined, you may have to provide additional information to the IRS. This information could be needed to clarify or to establish the accuracy or reliability of information contained in your records, statements, testimony, or documentary evidence before a deduction is allowed.

You must keep proof to support your claim to a deduction as long as your income tax return can be examined. Generally, it will be necessary for you to keep your records for 3 years from the date you file the income tax return on which the deduction is claimed. A return filed early is considered filed on the due date.

Reimbursed for expenses. Employees who give their records and documentation to their employers and are reimbursed for their expenses generally do not have to keep duplicate copies of this information. However, you may have to prove your expenses if:

1. You claim deductions for expenses that are more than reimbursements,
2. Your expenses are reimbursed under a nonaccountable plan,
3. Your employer does not use adequate accounting procedures to verify expense accounts, or
4. You are related to your employer.