M&IE rates: "M" is for meals.

* A taxpayer was captain of a vessel used to transport military vehicles and equipment worldwide. He maintained a principal residence in the state of Washington and was employed in Florida. His work required him to travel to many cities and be away from home continuously for long periods of time. His employer provided him with meals and lodging at no charge. However, he was responsible for his own incidental expenses, such as laundry, dry cleaning and local transportation. He kept no receipts to support these expenditures, but on his federal income tax return he took them as miscellaneous itemized deductions, using the per diem substantiation method and the meal and incidental expense (M&IE) rates of revenue procedure 96-28.

The IRS argued that M&IE rates cannot be used when only incidental (and not meal) expenses are incurred. The Tax Court rejected this argument and said the revenue procedure may apply to three distinct situations: when a traveling employee pays (1) only for meals, (2) for both meals and incidental expenses and (3) only for incidental expenses.

The service then argued that since the taxpayer had no receipts, he had no proof he actually incurred the expenses. The Tax Court responded that the intent of M&IE rates is to allow taxpayers to deduct a set amount of travel expenses incurred while traveling away from home without the necessity of keeping detailed records as to the amount of each expenditure. According to the court, under IRC section 274 all that is required is a record of the time, place and business purpose of the deduction (Maria L. Johnson v. Commissioner, 115 TC no. 16 (9-15-2000)).

Michael Lynch, Esq., professor of tax accounting at Bryant College, Smithfield, Rhode Island.