HomeMy WebLinkAboutItem 6.2 Travel&BusinessPolicy
CITY CLERK
File # .D~~~~~~
AGENDA STATEMENT
CITY COUNCIL MEETING DATE: December 20,2005
SUBJECT:
ATTACHMENTS:
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RECOMMENDATION:
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FINANCIAL STATEMENT:
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PUBLIC HEARING: Proposed Resolution Establishing a Policy
Regarding Official Travel and other Business and Reimbursement of
Expenses Associated Therewith and Ordinance Authorizing the
Payment of Expenses for Members of City Commissions and
Committees
Report Prepared by Joni Pattillo. .Assistant City Manager,
John Bakker, Assistant City Attorney,
and Leah Peachey, Associate Attorney .
1. Proposed Ordinance Amending Chapters 2.16 and 2.18 and
Adding Chapters 2.46 and 2.48 of the Dublin Municipal Code
Relating to the Reimbursement of Expenses for Members of City
Commissions and Committees
2. Proposed Resolution Establishing a Policy Regarding Official
Travel and other Business and Reimbursement.ofExpenses in
Conjunction Therewith
3. Administrative Policy Number AP 09-2005 Relating to Credit
Card Usage
4. Internal Revenue Publication 463-Travel, Entertainment, Gift,
and Car Expenses pages 1-15
5. U.S. General Services Administration (GSA)-Per Diem Rates for
California- FY 06
1. Open Public Hearing.
2. Receive staff presentation.
3. Receive public comments.
4. Close Public Hearing and Deliberate.
5. Waive 1 st reading and introduce the Ordinance (Attachment 1).
6. Adopt the Resolution (Attachment 2).
None.
COpy TO:
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Page 1 of 6
(;,. 2,
ITEM NO.
DESCRIPTION:
Currently, the City does not have a comprehensive policy regarding reimbursement for expenses
associated with travel and other official business. The City does have an Administrative Policy relating to
the usage of City credit cards, however, this policy does not address travel, official business, and the
reimbursement of personal funds expended in the performance of official duties.
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The impetus for the proposed policy is AB 1234, which becomes effective on January 1, 2006. Due to
recent reports in the press of incidents involving the misuse of public funds.by local government officials,
Governor Schwarzenegger recently signed into law the "Local Government Sunshine Bill," Assembly
Bill 1234 ("AB 1234") (D-Salinas). AB l234 imposes new restrictions on compensation and the
reimbursement of expenses for members oflocal1egislative bodies and also creates a new ethics training
requirement for certain local public officials. The law will go into effect January 1,2006.
This Staff Report and the proposed policy concern the reimbursement provisions of AB 1234. Staffwill
return to City Council regarding the ethics provisions of AB 1234 in a sepaI'ate report. Among other
things, AB 1234 imposes certain requirements that must be met in order to reimburse members of
legislative bodies, including a requirement that the jurisdiction have an adopted policy relating to
reimbursements.
The General Requirements of AB 1234
AB 1234 builds on the general rule that a city may reimburse its council members and other members of
local legislative bodies for their actual and necessary expenses incurred in the performance of official e
duties, so long as California law permits such reimbursements. AB 1234 requires local agencies that
reimburse members ofa legislative body to adopt a written policy "specifying the types of occurrences
that qualifY a member of the legislative body to receive reimbursement relating to travel, meals, lodging,
and other actual and necessary expenses." (s 53232.2(b).) The policy adopted by the local agency may
also specifY the reasonable reimbursement rates for such expenses. (S53232.2(c).) If the reimbursement
policy does not specifY reimbursement rates, then the Internal Revenue Service (IRS) rates set forth in
Publication 463 apply. (Ibid.)
AB 1234 applies. when a local agency, meaning a city, county or special district, reimburses a member of a
"legislative body" for actual and necessary expenses incurred in the performance of official duties. Under
AB 1234, a "legislative body" has the same definition as "legislative body" in the Brown Act,
Government Code Section 54952. Thus, AB 1234 covers the City Council, as well as commissions,
committees, boards, or other bodies of a city that are created by charter, ordinance, resolution, or formal
action of a legislative body. (Gov. Code S 54952 (a) and (b).)
However, important limiting language within AB 1234 may limit reimbursement to certain members of
legislative bodies without additional authorization. AB 1234 provides: "When reimbursement is
otherwise authorized by statute, a local agency may reimburse members of a legislative body for actual
and necessary expenses..." (S 53232.2(a).) This language seems to require that before a city can
reimburse a member of a legislative body, such reimbursement must be authorized by statute.
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The Government Code authorizes City Council members to be reimbursed: "City councilmen may be
reimbursed for actual and necessary expenses incurred in the performance of official duties." (Gov. Code
S 36514.5.) However, there is no statute explicitly authorizing the reimbursement of expenses for
members of the Planning Commission, P::irks & CommunityS.ervices Commission, Heritage & Cultural
Arts Commission, Senior Advisory Committee, or Youth Advisory Committee.
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In order to allow the City to continue reimbursing members of City Commissions and committees for
expenses associated with official business, the City can satisfy the requirement that reimbursement be
authorized by statute for the Commissions and committees by adopting an ordinance authorizing such
reimbursement. Under California law, "Any ordinance passed by a municipal corporation, within the
scope of the authority expressly conferred on it, has the same force within its corporate limits as a statute
passed by the Legislature has throughout the state." (Marculescu v. City Planning Commission of City
and County of San Francisco (1935) 7 Cal.App.2d 371, 373; 46 P.2d 308,309.) Accordingly, Staffis
proposing that the City Council adopt an ordinance that authorizes the reimbursement of expenses for
members of the Planning Commission, the Parks & Community Services Commission, the Heritage &
Cultural Arts Commission, the Senior Advisory Committee, and the Youth Advisory Committee.
<Attachment 2.)
AB 1234 also contains more detailed requirements regarding reimbursement for travel that are discussed
below.
Contents of the Proposed ReiItlbursement Policy
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Notwithstanding AB 1234's limitation to legislative bodies, the proposed Reimbursement Policy applies
to members of legislative bodies and City employees, who seek reimbursement for expenses incurred in
the performance of official business. Members of legislative bodies include members of the City Council,
Planning Commission, Parks & Community Services Commission, Heritage & Cultural Arts Commission,
Senior Advisory Committee, and Youth Advisory Committee. Staffbelieves that the same standards
should be applied to all individuals who seek reimbursement.
Provisions Reeardine Travel Arraneements
The proposed Policy provides that where a member of a legislative body or City employee plans to travel
in the performance of official duties, the traveler should arrange for airline tickets, hotel reservations, car
rental reservations, and conference registration fees to be paid in advance by the City, pursuant to
Administrative Policy 09-2005 relating to credit card usage. <Attachment 3.) The proposed Policy further
provides that the designated individual in each Department responsible for travel arrangements, pursuant
to Administrative Policy 09-2005, shall book the most economical rates that are available given the
traveler's business needs. The proposed Policy presumes that government rates for airline tickets, rental
car expenses, and hotel expenses provide the most economical and reasonable rates of reimbursement.
For lodging in connection with a conference or organized educational activity, lodging costs shall not
exceed the maximum group rate published by the conference or activity sponsor, provided that lodging at
the group rate is available to the member of a legislative body or City employee at the time of booking.
Only if advance arrangements cannot be made due to lack of advance warning or other extenuating
circumstances as approved by the City Manager or his or her designee, may a member of a legislative
body or City employee seek reimbursement for these expenses. Where reimbursement is permitted, the
Policy applies the restrictions set forth in AB 1234 that prohibit reimbursement at rates above government
and group rates and at rates above the group rate published by the conference or activity.
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Occurrences that Qualifv for Reimbursement under the ProlJosed Policv
AB 1234 provides that the City may reimburse for "expenses incurred in the perfonnance of official duties" a
the City adopts a written policy which specifies the types of occurrences that qualify for reimbursement. <~
1234, g 53232.2(b).) The proposed Policy permits reimbursement for attending conferences, attending
organized educational activities, meeting with local, state, and federal legislators regarding official business,
meeting with staff and officials of surrounding communities regarding official matters of mutual concern,
attending City events, participating in regional, state, and national organizations whose activities affect the
City's interests, and implementing a City Council-approved strategy for attracting and retaini~g businesses to
the City, which will typically involve at least one staff member.
Rates of Reimbursement
AB 1234 provides that the written policy adopted by the City regarding reimbursement may specify
reasonable rates of reimbursement for travel, meals, lodging and other actual and necessary expenses.
(AB 1234, ~ 53232.2( c).) If the City does not provide for rates of reimbursement in its Reimbursement
Policy, the IRS reimbursement rates in Publication 463 will apply. (Ibid.)
The proposed Travel Reimbursement Policy specifies rates of reimbursement for travel and lodging instead of
allowing the IRS rates to govern. If travel arrangements paid by the City in advance of the travel cannot be
made, the proposed Policy in general requires the claimant to substantiate any request for reimbursement by
obtaining three quotations for travel rates, including government and group rates when available. This is
consistent with AB 1234's requirement that reimburseInents to members of legislative bodies not exceed the
government or group rates provided by a provider of transportation or lodging services, when those rates are
available. The Claim. a1Jt may not seek reimbursement for a rate in excess of the least expensive rate quoted t.
the claimant. Lodging expenses are treated slightly differently because business needs often impose certain .,
restrictions on lodging options. .
For meal reimbursement rates, the proposed Policy adopts the meal reimbursement rates provided by the
U.S. General Services Administration (GSA), as adopted by IRS Publication 463. Publication 463 adopts
the per diem travel rates provided by the GSA <Attachment 5). The GSA per diem travel rates cover
lodging, and meals and incidental expenses. The per diem rates vary by county, for example, travel in
Alameda County may be reimbursed at a maximum of $89 per night for lodging (excluding taxes), and
$59 per day for meals and incidental expenses. This $59 for meals and incidental expenses rate is further
divided into $11 for breakfast, $16 for lunch, $29 for dinner and $3 for incidental expenses. However, the
per diem reimbursement rates for several other California Counties; including Los Angeles, Orange,
Ventura, San Diego, San FranCisco, Napa, Monterey and Sonoma Counties, allows for $64 for meals and
incidental expenses ($12 for breakfast, $18 for lunch, $31 for dinner, and $3 for incidental expenses).
Because much of the travel on official city business is to such counties, the proposed Policy uses the meal
rates for those counties rather than those for Alameda County. The Council may consider adopting meal
reimbursement rates that differ from the rates provided in the proposed Policy. AB 1234 provides that
such rates of reimbursement are at the discretion of the Council.
The Council may also consider an alternative that permits members oflegislative bodies and employees to
aggregate the per-meal amounts set forth in the Policy. If the Council chooses to allow such aggregation,
the following sentence should be added to Section 7.a.: "Notwithstanding the per-meal amounts set forth
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above, the member or employee may be reimbursed for m~ls i~. an amount that does not exceed the
aggregate amount of meal allowances in a 'particular day forwhich the member or employee is eligible."
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Other Incidental Exvenses
The Policy authorizes reimbursement for certain other incidental expenses. . These expenses include
gratuities for hotel employees, parking fees, cab fares, public transportation costs, tolls, telephone calls
relating to the performance of official duties, and conference registration fees. The rates are at actual
costs.
The proposed Policy does not allow for reimbursement of personal telephone calls. However, Staff
believes that it would be consistent with applicable law to reimburse for personal calls, based on the
theory that such calls are only necessary due to the fact that the claimant is on official bUsiness. For
example, a traveler may wish to make a daily call home to check in, and, if the traveler were not away
from home, this call would not be necessary. If the Council believes that some personal calls should be
reimbursable, Staff would recommend that a daily cap be placed on the dollar amount of reimbursement.
Documentation
Consistent with AB 1234's requirements, the Policy requires that all expenses be documented on City provided
forms and that the forms be accompanied by itemized receipts documenting the expenses. These reports must
be submitted within 14 days of incurring the expense. In addition, the Policy also requires members of
legislative bodies to provide a briefreport on meetings attended at City expense at the next regular meeting of
the legislative body following the event for which reimbursement is sought. This requirement implements yet
another requirement of AB 1234.
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Other Cities Reimbursement Policies
The Cities of Livermore, Pleasanton and San Ramon each have a travel policy, which was drafted prior to
the adoption of AB 1234. Therefore, these travel policies are not necessarily compliant with the
reimbursement provisions of AB 1234. Although all three travel policies apply both to city officials and
city employees, the rates of reimbursement under each policy differs significantly. For example,
Pleasanton's meals reimbursement rate was last updated on July 1, 2003 and provides $9 for breakfast,
$14 for lunch, and $25 for dinner. San Ramon reimburses meals under the IRS rates discussed above.
Finally, Livermore has no dollar limits on meal reimbursement rates, but provides that reimbursement will
be made for "normal and reasonable" expenses incurred for meals, considering the location, area, and
circumstances involved.
With regards to the rate of reimbursement oflodging expenses, all three travel policies provide for
reimbursement for standard single occupancy rooms, but give little direction in choosing the
accommodations. San Ramon's policy provides that the accommodations should be "economical but
practical;" Pleasanton's policy provides that travelers should stay at or very near the conference site.
Because of the new reqUirements regarding reimbursement imposed by AB 1234 and the consequent
public scrutiny of such reimbursement, Staff recommends that the City consider the more detailed
reimbursement rates of the proposed Policy.
Administrative Policv ReeardineCredit Card Usaee
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The proposed Policy regarding Official Travel and Other Business and Reimbursement of Expenses
Associated Therewith directs the City Manager to revise the Administrative Policy on Credit Card Usage
__ to conform to the limits on expenditures for transportation, lodging, meals, and other expenses set forth in
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this policy. This will ensure that expenditures made with a city credit card do not exceed those, which
could otherwise be made under this Policy.
RECOMMENDATION
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Staff recommends that the City Council open the Public Hearing; receive the staff report; receive public
Comments; close Public Hearing and Deliberate; and waive the reading and introduce the Ordinance
(Attachment 1) authorizing reimbursement for members of commissions and committees; and adopt the
Resolution (Attachment 2) establishing the proposed Travel and other Business and Reimbursement of
Expenses in Conjunction Therewith.
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ORDINANCE NO.
AN ORDINANCE OF THE CITY OF DUBLIN
AMENDING CHAPTERS 2.16 AND 2.18 AND ADDING CHAPTERS 2.46 AND 2.48
OF THE DUBLIN MUNICIPAL CODE RELATING TO THE REIMBURSEMENT OF
EXPENSES FOR MEMBERS OF CITY COMMISSIONS AND COMMITTEES
The City Council of the City of Dublin does hereby ordain as follows:
Section 1. Amendment of Section 2.16.010: Section 2.16.010 of the Dublin
Municipal Code is amended to read as follows:
"2.16.010 Members-Expenses and Gcompensation.
Parks and Communitv Services Commission members shall be entitled to reimbursement for
expenses as the Council mav approve. In addition. Parks and Community Services Commission
members shall be paid fifty dollars ($50) for each meeting attended, to a maximum of two (2)
meetings in a calendar month; provided, that Commission members shall not be deemed to be
city employees by virtue of such payment."
Section 2. Amendment of Section 2.18.010. Section 2.18.010 of the Dublin
Municipal Code is amended to read as follows:
"2.18.010 Members- Expenses and Gcompensation.
Heritage and Cultural Arts Commission members shall be entitled to reimbursement for expenses
as the Council may approve. In addition. Heritage and Cultural Arts Commission members shall
be paid fifty dollars ($50) for each meeting attended to a maximum of two (2) meetings in a
calendar month, provided that Comniission members shall not be deemed to be city employees
by virtue of such payment."
Section 3. Addition of Chapter 2.46. Chapter 2.46 is added to the Dublin Municipal
Code as follows:
"Chapter 2.46. Senior Advisory Committee.
2.46.010 Members-Expenses.
Senior Advisory Committee members shall be entitled to reimbursement for expenses as
the Council may approve."
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ATTACHMENT 1
Dt:.-M Cst.2 12/20 } os-
? i5b-50
Section 4. Addition of Chapter 2.48. Chapter 2.48 is added to the Dublin Municipal .
Code as follows:
"Chapter 2.48. Youth Advisory Committee.
2.48.010 Members-Expenses.
Youth Advisory Committee members shall be entitled to reimbursement for expenses as
the Council may approve."
Section 8. Severability. In the event any section or portion of this ordinance shall be
determined invalid or unconstitutional, such section or portion shall be deemed severable and all
other sections or portions hereof shall remain in full force and effect.
Section 9. Savings Clause. All code provisions, ordinaiJ.ces, and parts of ordinances
in conflict with the provisions of this chapter are repealed. The provisions of this chapter, insofar
as they are substantially the same as existing code provisions relating to the same subject matter
shall be construed as restatements and continuations thereof and not as new enactments. With
respect, however, to violations, rights accrued, liabilities accrued, or appeals taken, prior to the
effective date of this ordinance, under any chapter, ordinance, or part of an ordinance shall be
deemed to remain in full force for the purpose of sustaining any proper suit, action, or other
proceedings, with respect to any such violation, right, liability or appeal.
Section 10. Effective Date. This Ordinance shall take effect and be enforced thirty .
(30) days following its adoption.
Section 11. Posting. The City Clerk of the City of Dublin shall cause this Ordinance
to be posted in at least three (3) public places in the City of Dublin in accordance with Section
36933 of the Government Code of the State ofCalifomia.
PASSED AND ADOPTED BY the City Council of the City of Dublin, on this _ day
of January 2006, by the following votes:
AYES:
NOES:
ABSENT:
ABSTAIN:
MAYOR
ATTEST:
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CITY CLERK.
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RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF DUBLIN
ESTABLlSIDNG A POLICY REGARDING OFFICIAL TRAVEL AND OTHER
BUSINESS AND REIMBURSEMENT OF EXPENSES ASSOCIATED
THEREWITH
WHEREAS, members of the City's legislative bodies and City employees perform
official duties that require travel.
WHEREAS, the official duties that involve travel include training, conferences,
meetings with legislators and regulators, and meetings with staff and officials of surrounding
communities regarding matters of mutual importance.
WHEREAS, the performance of such official duties facilitates the efficient and
satisfactory completion of City business and promotes a good relationship between the City
and surrounding communities, the state government, and the federal government.
WHEREAS, members of legislative bodies and City employees incur expenses related
to the performance of official duties, which may take place both within and outside of the City
of Dublin.
WHEREAS, the California Government Code permits the City to reimburse
employees and members of the City Council for expenses incurred in the performance of
official duties.
WHEREAS, the City Council has adopted an ordinance authorizing reimbursement
for the members of the Planning Commission, Parks & Community Services Commission,
Heritage & Cultural Arts Commission, Senior Advisory Committee, and Youth Advisory
Committee for expenses incurred in the performance of official duties.
WHEREAS, Assembly Bill 1234 (2005) requires the City Council to, prior to
providing reimbursement to members of City legislative bodes, adopt a policy regarding the
reimbursement for expenses incurred by members of legislative bodies in the performance of
official duties.
WHEREAS, this Resolution is intended (a) to satisfy the pertinent requirements of AB
1234 relating to reimbursement of expenses of members of legislative bodies; (b) to set forth a
reimbursement policy applicable to employees; and (c) to establish other requirements related
to travel expenses paid by the City.
NOW, THEREFORE, the City Council of the City of Dublin does RESOLVE as
follows:
1. Purpose. The purpose of this policy is to ensure that the reimbursement of and members of
legislative bodies for expenses incurred in the performance of official duties complies with the
Califomia Government Code, including the recently enacted Assembly Bi1l1234, which adds
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ATTACHMENT 2
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Sections 53232.2 et seq. to the Government Code, to establish a reimbursement policy
applicable to City employees, and to establish other requirements related to travel expenses
paid by the City.
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2. Policy: Members of a legislative body and City employees may be reimbursed for actual
and necessary expenses incurred in the performance of official duties only as provided in this
Policy.
3. Definitions. The following definition shall apply to this policy:
"Legislative body" means the City Council, Planning Commission, Parks &
Community Services Commission, Heritage & Cultural Arts Commission, Senior
Advisory Committee, and Youth Advisory Committee.
4. Types of Occurrences that Qualify for Reimbursement. Members of a legislative body and
City employees may be reimbursed for actual and necessary expenses incurred in the
performance of official duties, including (a) attending conferences, (b) attending organized
educational activities, (c) meeting with local, state, and federal legislators and officials
regarding official city business, (d) meeting with staff and officials of surrounding
communities regarding matters of mutual concern, (e) attending City events, (f) participating
in regional, state, and national organizations whose activities affect the City's interests, and (g)
implementing a City-approved strategy for attracting and retaining businesses to the City,
which will typically involve at least one staff member.
5. Government Rates. Airlines, hotels, and rental car companies often make special rates e
available to state, federal, and local governments. These rates are presumed to be the most
economical and reasonable rates for the purposes of this Policy. Those booking travel should
consult available resources, such as www.catravelsmart.com. to determine the applicable
government rates.
6. Transportation.
a. Cost Comparison to Determine Mode of Transportation. When contemplating
travel arrangements, members of a legislative body and City employees should choose the
least expensive mode of traveL For example, in some cases, it may be less expensive for the
City to reimburse an employee or members of a legislative body for mileage associated with
vehicle transportation than to pay for air traveL Prior to making travel arrangements, the
employee or member of the legislative body shall compare the cost of traveling by the various
modes of travel available and determine the most cost effective mode given the employee or
official's scheduling needs. City employees and members oflegislative bodies shall also
consider cost-saving strategies such as car-pooling in the cost comparison.
b. Air Travel. When possible, members of a legislative body and City employees
should arrange for air travel to be paid for by the City, pursuant to Administrative Policy 09-
2005 relating to credit card usage. The designated individual in each Department responsible
for making travel arrangements, pursuant to Administrative Policy 09-2005, shall book the .a
most economical and reasonable mode and class of transportation available that is consistent .,
with the employee or official's scheduling needs.
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If advance arrangements cannot be made due to lack of advance warning or other
extenuating circumstances as approved by the City Manager or his or her designee before the
expenses are incurred, members of a legislative body and City employees may be reimbursed
for the expense of a roundtrip airplane ticket, so long as the claimant obtained three quotations
for airfare, including government and group rates when available, and the amount of
reimbursement sought does not exceed the least expensive airfare that is consistent with the
employee or official's scheduling needs.
c. Personal Vehicle Travel. Members of a legislative body and City employees may
be reimbursed for expenses incurred in traveling by personal vehicle on official business at the
Internal Revenue Service Mileage Rate. Members of a legislative body and City employees
requesting such reimbursement shall file a Mileage Reimbursement Request form, which shall
satisfy the Documentation Requirements provided in Section 15 ofthis Reimbursement
Policy.
d. Car Rental Reimbursement. Prior to requesting a rental car, employees and
officials traveling on official business shall consider whether a rental car is the least expensive
means of transportation at the destination. When possible, members of a legislative body and
City employees should arrange for car rentals to be paid for in advance by the City, pursuant
to Administrative Policy 09-2005 relating to credit card usage. The designated individual in
each Department responsible for travel arrangements, pursuant to Administrative Policy 09-
2005, shall book the most economical and reasonable rental rate that is available.
If advance arrangements cannot be made due to lack of advance warning or other
extenuating circumstances as approved by the City Manager or his or her designee before the
expenses are incurred, members of a legislative body and City employees may be reimbursed
for the expense of car rental, so long as the claimant obtained three quotations for car rental
rates, including government and group rates when available, and the amount of reimbursement
sought does not exceed the least expensive car rental rate that is available.
7. Meals.
a. Meals in Conjunction with Travel. Members of a legislative body and City
employees may be reimbursed for expenses incurred for meals consumed in conjunction with
travel on official business. A member of a legislative body may be reimbursed for meals in
amounts that do not exceed the following, which include tax and gratuity:
Breakfast: $ 12
Lunch: $ 18
Dinner: $ 31
If a meal is provided by a conference or organized educational activity, or otherwise included
in the payment of registration fees, City employees and members of legislative bodies may not
be reimbursed for meals purchased in lieu of, or in addition to, the provided meal.
b. Reimbursementfor Other Meals. Where authorized by Section 4 of this Policy,
members of a legislative body and City employees may be reimbursed for their meals
associated with the performance of official duties at rates not to exceed the amounts set forth
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in Section 7(a) of this Policy. Meals for spouses, family members, and other third parties shall
not be reimbursed.
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8. Lodging.
a. The City will pay for or reimburse for lodging expenses when travel on official
city business reasonably requires an overnight stay.
b. When possible, members of a legislative body and City employees should
arrange for lodging expenses to be paid by the City, pursuant to Administrative Policy 09-
2005 relating to credit card usage. The designated individual in each Department responsible
for making travel arrangements, pursuant to Administrative Policy 09-2005, shall book
lodging at the most economical and reasonable rates for lodging that is in a location that is
reasonable and convenient in relation to the employee or official's scheduling and official
business needs. For lodging in connection with a conference or organized educational
activity, such lodging costs shall generally not exceed the maximum group rate published by
the conference or activity sponsor, provided that lodging at the group rate is available to the
City employee or member of a legislative body at the time of booking.
c. If such advance arrangements cannot be made due to lack of advance warning
or other extenuating circumstances as approved by the City Manager or his or her designee
before the expenses are incurred, a City employee or member of the legislative body may be
reimbursed for lodging expenses, so long as the amount of the reimbursement does not exceed
the government or group rates offered by a provider of lodging in a location that is reasonable
and convenient in relation to the employee or official's official business needs or the
maximum group rate published by the event or activity sponsor, whichever is higher.
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9. Incidental Expense Reimbursement. Members of a legislative body and City employees
may be reimbursed for actual and necessary incidental expenses incurred in connection with a
conference, organized educational activity, or other performance of official duties. Incidental
expenses include gratuities for hotel employees, parking fees, cab fares, public transportation
costs, tolls, telephone calls relating to the performance of official duties, and other such
incidental expenses.
10. Conference Registration Fee Reimbursement. When possible, members of a legislative
body and City employees should arrange for conference and organized educational activity
registration fees to be paid in advance of the conference by the City, pursuant to
Administrative Policy 09-2005 relating to credit card usage. If such advance arrangements
cannot be made due to lack of advance warning or other extenuating circumstances, members
of a legislative body and City employees may be reimbursed for the expense of a conference
or organized educational activity registration fee.
11. Other Expenses. All other actual and necessary expenses incurred in the performance of
official duties that are not described in this Reimbursement Policy shall not be reimbursed
unless approved before the expense is incurred by the City Council.
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12. Prohibited Expense Reimbursements. Members of a legislative body and City employees
shall not be reimbursed for expenses such as alcoholic beverages, personal telephone calls,
spouse or family meals, entertainment expenses such as movie rental fees, theater tickets or
sporting event fees, and fines for parking citations.
13. Documentation Requirements. The City Manager shall provide members of a legislative
body and City employees with expense report forms to be filed with by employee or member
of the legislative body for reimbursement for actual and necessary expenses incurred in
performance of official duties. The expense report form shall be used to document that the
expenses for which reimbursement are sought are proper under this Policy. Members of a
legislative body and City employees must file expense report forms within 14 calendar days of
incurring the expense, and the expense report forms shall be accompanied by itemized receipts
documenting each expense. All documents related to reimbursable expenditures shall be
considered public records subject to disclosure under the California Public Records Act.
14. Brief Report to Legislative Body. Members of the legislative bodies shall provide brief
reports on meetings attended at the expense ofthe local agency at the next regular meeting of
the legislative body immediately following the event for which reimbursement is sought. If
more than one member of a legislative body attends the event, a report from one of the
members that mentions the other's presence is sufficient.
15. Effect of Violation. A violation of this Reimbursement Policy may result in the
following penalties, including, but not limited to: 1) loss of reimbursement privileges; 2)
restitution to the City; 3) civil penalties for the misuse of public resources pursuant to
Section 424 of the California Penal Code; and 4) prosecution for misuse of public
resources pursuant to Section 424 of the California Penal Code.
16. Revisions to Credit Card Policy. The City Manager shall revise Administrative
Policy 09-2005 (Credit Card Usage) to conform to the limits on expenditures for
transportation, lodging, meals, and other expenses set forth in this policy.
17. Effective Date. This Resolution shall take effect immediately.
18. Severability Clause. The provisions of this Resolution are severable and if any
provision, clause, sentence, word or part thereof is held illegal, invalid, unconstitutional,
or inapplicable to any person or circumstances, such illegality, invalidity,
unconstitutionality, or inapplicability shall not affect or impair any of the remaining
provisions, clauses, sentences, sections, words or parts thereof of the ordinance or their
applicability to other persons or circumstances.
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'2 003 ()
PASSED, APPROVED, AND ADOPTED this 20th day of December 2005, by _
the following vote: ,.,
AYES:
NOES:
ABSENT:
ABSTAIN:
ATTEST:
City Clerk
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Mayor
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PAGE 1
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ADMINISTRATIVE
POLICIES
AY 09-2005
REVISION
Richard C. Ambrose
SUPERSEDES
AY 09-2000
December 6, 2000
EFFECTIVE DATE
July 15, 200S
UBJECT
Credit Card Usage
#1
APPROVED BY
A. PURPOSE
This policy establishes procedures for use of City credit cards in order to accomplish the following objectives:
1. Improve the ease of purchasing small items or items needed in the event of an emergency or within a
timeframe not conducive to the use of a City warrant (check).
2. Ensure good principles and internal control and protection of City assets.
3. To ensure that adequate credit is available at the time of the credit card purchases.
B. AREAS OF RESPONSIBILITY
Authorized Credit Card Users are responsible for:
1. Appropriate use of the credit card.
2. Compliance with City's Credit Usage Policies.
3. Timely preparation and submittal of the claim form (within 5 days of the transaction/purchase or return
from City-related travel).
4. Submission of all original receipts/invoices and other documentation with the claim form
Deoartment Reviewer (i.e. supervisor or manager signing claim form):
1. Ensure that the appropriate claim form is being submitted by the department credit card "user."
2. Ensure that acquisitions are valid City purchases.
3. Ensure that each purchase is supported by a receipt/invoice.
4. Submit claim forms back to Finance within five (5) working days from receipt of the claim information.*
* Timelv submission back to Finance can nrevent late charpes beinp annlied to Citv accounts
Finance Department:
1. Review and reconcile the final monthly statement.
2. Pay all invoices after receipt ofcertified copy of the Monthly Statement from the department reviewer.
3. Update (at least on an annual basis) all authorized credit card user lists for each department.
4. Provide the custodial control and oversight for the City's credit cards.
C. AUTHORIZED USES OF CITY CREDIT CARDS
The credit card is to be used for City purchases only and should not be used for personal purchases.
Credit cards are only to be used when purchases cannot otherwise be made with City warrants
(checks) or City cash. Criteria to be considered in determining whether the use of the credit card is
a TO riate are as follows:
ATTACHMENT 3
ClliY OF DUBLIN
ADMINISTRATIVE POLICIES
NUMBER AP 09-2005
PAGE20F 4
a. The lack of available City cash.
b. There is insufficient time to issue a check for purchase of goods or services related to an operatioa
purpose, event or disaster. W
c. The exact purchase amount of goods or services is not known until the purchase is actually made and
arrangements have not previously been made for the vendor to bill the City.
d. The use of the credit card would avoid additional charges or result in savings to the City.
e. Training classes, travel and conference arrangements; however, City checks should be used for
hotel room or expenses, when possible, in order to reduce the amount of charges made to City
credit cards.
3. Use of City credit cards on the internet is prohibited unless specific authorization is granted to an
employee by the Department Head due to the fact that:
a. The Internet is the only source for the product.
b. By purchasing on-line, the City can take advantage of cost-saving opportunities.
c. There is. insufficient time to issue a check for purchases of goods or services related to an operational
purpose, event or disaster.
4. Use of City credit cards to obtain cash back and/or reward bonuses from any transaction is prohibited
(including bank tellers, automated teller machines, credit card reward programs, grocery store or other retail
store voucher programs, etc). Any such bonus coupon, reward receipt or voucher should be returned to the
appropriate Department Head for proper use/disposition.
S. Providing a credit card number over the telephone or fax is prohibited; unless specific
authorization is granted to an employee by the Department Head due to the
fact that:
a. The City can take advantage of potential cost-savings
b. The department can meet a critical purchasing deadline
c. The phone or fax is determined to be the most expeditious transaction method
d. There is insufficient time to issue a check for purchases of goods or services related to an operational
purpose, event or disaster.
A separate list will be required to identify those employees who have the authority to use the credit card to
book travel/conference arrangements. Each department will designate ONE primary person and no more
than TWO backup personnel for this function (preferably one of the designees will be the Department Head).
D. PROCEDURE FOR USE OF CITY CREDIT CARDS
1. A credit card custodian(s) will be designated by the City Manager (see B: Areas of Responsibility; Finance
Department). The custodian will be responsible for the following:
a. Releasing credit cards to only those employees who are authorized to use the credit card.
b. Safeguarding the credit cards when they are not in use.
c. Maintaining a credit card activity log.
d. Assuring that the reporting requirements of this policy are complied with by credit card users.
e. Reporting non-compliance of this policy to the Administrative Services Director.
f. Keeping the credit card in a secure place, maintaining the card usage log, ensuring that monthly
statements are submitted for payment within the specified time frame.
ClTN OF DUBLIN
ADMINISTRATNE POLICIES NUMBER AP 09-2005 PAGE 3 OF 4
2. The Administrative Services Department will maintain an updated list of employees authorized to use the
credit cards and designated individuals authorized to make travel arrangements. The Administrative
Services Director is responsible for issuing, monitoring and controlling the cards and for enforcing the policy
and procedures Citywide.
::sO
3. Department Heads are responsible for resolving any disputed charges and reporting the loss of any credit
card for the employees within their respective Departments.
4. Departments will provide, to the Administrative Services Director, a list of departmental personnel who are
authorized to use City credit cards. Departments will be held accountable for any unauthorized purchase or
any unsubstantiated charge made by their Staff on City credit cards. It is important to note that if the person
checking out the. card "opts" to pass along the card to others in their department, they will be held
responsible IF the "secondary users". make any unauthorized purchases, fail to collect all the necessary
receipts or otherwise "mis-handle" the card. The individual who originally checks out the card must be the
person who returns it to the Finance Unit and is responsible for providing ALL necessary documentation and
claim forms, REGARDLESS of who made the purchases. Employees may be required to reimburse the City
for unauthorized purchases.
5. To facilitate tracking and accountability, EACH department will be issued its own card and separate card
number.
6. Staff members should have their City business card and driver's license available should a vendor ask for
identification.
Department Heads MAY check out the credit card for their individual use, when conducting City business,
with the prior approval of the City Manager. As a rule, employees should not carry City credit cards with
them for City-related travel unless special arrangements are made in advance with the City Manager.
NOTE: this practice is generally discouraged, since the chance for loss or theft of the card increases; and,
once the card is checked out for an extended period, it is not available to others in the Department who may
need access to the card for transacting day-to-day business.
8. Travel and conference arrangements may be executed by telephone or fax, but must be performed by
designated individuals in each Department. Designated individuals need to complete a travel arrangement
form that indicates hotel locations, flight arrangements, phone numbers and confirmation numbers for each
trip. The designated individual will then telephone in the credit card number to confirm the arrangements
and forward the original form to the Administrative Services Department. A copy of the travel arrangement
form should also be given to the person traveling.
9. At the time use of credit card is requested, the approximate amount of the purchase should be known in order
to ensure that there is credit available on the credit card to be issued.
E. REPORTING REQUIREMENTS
1. Any time a purchase is made, the credit card user must fill out an expense claim form (see attached) and ,
attach the original receipt (i.e., charge slip or any other documentation) as proof of purchase. The claim form '
will be returned to the credit card custodian at the time that the credit card is returned. The credit card
custodian will record the amount of the charge on the credit card activity log and forward the claim form to
the respective Department Head for approval.
cn::y OF DUBLIN
ADMINISTRATIVE POLICIES
NUMBER 09-2005 Page 4 of 4
NOTE:
The employee who has used the credit card should first submit the claim form to the Finance unitir
review; Finance will then forward it to the Department Head for approval. The Department Head
review and approve the claim form and return it to the credit card custodian within 5 days for fi
processing.
2. Upon return from City-related travel, hotel and other travel receipts must also be submitted with a claim
form to the respective credit card custodian for approval.
3. The expense claim form shall include the following information for each transaction: a). date of the
transaction, b) name of the vendor used for the transaction, c) purpose of the transaction, d) account number
to be charged for the transaction, e) amount of the charge, and f) original receipt for the transaction.
4. All Departments are responsible for ensuring that all transactions are properly coded and submitted to the
Administrative Services Department for timely payment, as described in D1.
5. Upon receipt of the monthly credit card statement, the credit card custodian will review it for accuracy;
batch the expense claim forms to the monthly statement, activity log and all corresponding receipts attached
and submit it to Accounts Payable for payment. Each claim form must account for all items listed on each
monthly statement.
F. HANDLING OF DISPUTED CHARGES
1. If items purchased with the credit card are found to be defective or the repair or service faulty, the
Department that purchased the items is responsible for returning the item(s) to the merchant for replacenA
or for obtaining a credit on the purchase. City Staff must notify their Department Head and the -
custodian in writing of such returns or disputes.
2. If the merchant refuses to replace or correct the faulty item, then the purchase of this item will be considered
to be in DISPUTE. It is the responsibility of the Department to correct disputed items (defectivelbroken
goods, wrong items received, etc.) with the bank. Department Heads are responsible to see that their
employees correct disputed items.
3. The card custodian should attach a brief note to the payment claim form that explains any disputed charges
that have been corrected or are still pending.
G. LOST OR STOLEN CREDIT CARDS
1. The card custodian or Administrative Services should be notified immediately upon discovery of the loss
or theft of a City credit card. Administrative Services will notify the bank of such situations.
2. The Department Head is also required to submit a written report of any lost or stolen credit card incident to
the Administrative Services Director. .
H. NON-ADHERENCE TO THE CREDIT CARD POLICY
1. Improper use of City credit cards could result in employee discipline.
.
2. Non-adherence to these policies may result in loss of credit card privileges.
Credit Card Pali - revisioll2
~
a Department
_ of the
Treasury
Internal
Revenue
Service
e
e
. Publication 463
Cat. No. 11081L
Travel,
Entertainment,
Gift, and Car
Expenses
For use in preparing
2005 Returns
Get forms and other information
faster and .easier by:
Internet. www.irs.gov
136630
Contents
What's New . . . . . . . . . . . . . . . . . . . .. 2
Reminder ........... . . . . . . . . . .. 2
Introduction. . . . . . . . . . . . . . . . . . . .... 2
1. Travel ..... . . . . . . . . . . . . . . . . .. 2
Traveling Away From Home. . . . . . .. 3
Travel to Family Home ........ 3
Tax Home. . . . . . . . . . . . . . . .. 3
Temporary Assignment or Job . . . . .. 4
What Travel Expenses Are
DeduclJble? . . . . . . . . . . . . . . .. 4
Meals.................... 5
Travel in the Uniled States. . . . .. 6
Travel Outside the United
States................. 6
Luxury Water Travel .. .. . .. . .. 8
Conventions .... .. . .. .. . ... 8
2. Entertainment. . . . . . . . . . . . . . . . .. 9
What Entertainment Expenses
Are Deductible? . . . . . . . . . . . . . ill
Directly-Related Test ......... 10
Associated Test. . . . . . . . . . . . . 11
50% Limit. . . . . . . . . . . . . . . . . . . . 12
Exceptions to the 50% limit . . . . . 12
3. Gifts ............. . . . . . . . . . . . 13
4. Transportation . . . . . . . . . . . . . . . . . 13
Car Expenses . . . . . . . . . . . . . . . . . 15
Standard Mileage Rate . . . . . . . . 15
Actual Car Expenses ......... 16
Leasing a Car .... . . . . . . . . . . 23
Disposition of a Car . . .. .. . .. . .. . 24
5. Recordkeeplng . . . . . . . . . ., . . . . . . 24
How To Prove Expenses . . .... . .. . 24
What Are Adequate
Records? ..............24
What If I Have Incomplete
Records? .............. 25
Separating and Combining
Expenses ..............25
How Long To Keep
Records and Receipts . . . . . . 26
Examples of Records . . . . . . . . . 26
6. How To Report. . . . . . . . . . . . . . . . . 27
Where To Report. . . . . . . . . . . . . . . 27
Vehicle Provided by Your
Employer .............. 27
Reimbursements . . . . . . . . . . . . . . . 27
Accountable Plans .. . . . . . . . . . 28
Nonaccountable Plans ........ 31
Rules for Independent
Contractors and Clients . . . . . 31
Completing Forms 2106 end
2106-EZ . . . . . . . . . .. . . .. . . . 31
Speciel Rules ............., 32
Illustrated Examples . . . . . . . . . . 34
7. How To Get Tax Help............ 39
Appendices . . . '. . . . . . . . . . . . . . . . . . 40
Index. . . . . . . . . . . . . . . . . . .: . . . . , . 54
ATTACHMENT 4
What's New
Standard mileage rate. For 2005, the stan-
dard mileage rate for the cost of operating your
car for business usa is:
. 40'12 cents per mile for the period January
1 through August 31 , 2005, and
. 48'12 cents per mile for the period Septem-
ber 1 through December 31,2005.
Car expenses and use of the standard mile-
age rate are explained in chapter 4.
Depreciation limits on cars, trucks, and
vans. The total section 179 deduction and de-
preciation you can claim on cars, trucks, and
vans you use for business purposes has de-
creased for vehicles first placed in service in
2005. See Depreciation limits in chapter 4.
Reminder
Photographs of missing children. The Inter-
nal Revenue Service is a proud partner with the
National Center for Missing end Exploited Chil-
dren. Photographs of missing children selected
by the Center may appear in this publication on
pages that would otherwise be blank. You can
help bring these children home by looking et the
photographs and calling 1-800- THE-LOST
(1-800-843-5678) If you recognize a child.
Introduction
You may be able to deduct the ordinary and
nec;essary business-related expenses you have
for.
. Travel,
. Entertainment,
.. Gifts, or
. Transportation.
An ordinary expense is one that is common and
accepted in your field of trade, business, or
profession. A necessary expense is one that is
helpful and appropriate for your business. An
axpense does not have to be required to be
considered necessary.
This publication explains:
. What axpenses are deductible,
. How to report them on your return,
. What records you need to prove your ex-
penses, and
. How to treat eny expense reimbursements
you may receive.
Who should use this publication. You
should read this publication if you are an em-
ployee or a sole proprietor who has business-re-
lated travel, entertainment, gift, or transportation
expenses.
Users of employer-provldedveh;cles. If
an employer-provided vehicle was available for
your use, you received a fringe benefit. Gener-
ally, your employer must include the value of the
use or availability in your income as pay. How-
Page 2
Chapter 1 Travel
ever, there are exceptions If \he use of the vehi-
cle qualifies as a working condition fringe benefit
(such as the use of a qualified nonpersonal use
vehicle). .
A working condition fringe benefrt is any
property or service provided to you by your em-
ployer for wh Ich you could deduct the cost as an
employee businass expense If you had paid for
It.
A qualified nonpersonal use vehicle is one
that is not likely to be used more than minimally
for personal purposes because of its design.
See Qualified nonpersonal use vehicias undar
Actual Car Expenses in chaptar 4.
For information on how to report your car
expenses that your employer did not provide or
reimburse you for (such as when you pay for gas
and maintenance for a car your employer pro-
vldes), see Vehicle Provided by Your Employar
In chapter 6.
Who does not need to use this publication.
Partnerships, corpor:atlons, trusts. and amploy-
ers who reimburse their employees for business
expenses should refer to their lax form Instruc-
tions and chapter 13 of Publication 535, Busi-
.ness Expenses, for Information on deducting
travel, meals, entertainment, and transportalion
expenses.
If you are an empioyee, you will not need to
read this publication If all of the following are
true.
. You fully accounted to your employer for
your work-related expenses.
. You received full reimbursement for your
expenses.
. Your employer required you to relum any
excess reimbursement and you did so.
. There is no amount shown with a code "L'
in box 12 of your Form W-2, Wage and
Tax Statement.
If you meet all of these condilions, there is no
naed to show the expenses or the reimburse-
ments on your return. If you would like more
information on reimbursements and acCounting
to your employer, see chapter 6.
S If you meet these conditions and your
TIP employer included reimbursements
on your Form W-2 in error, esk your
employer for a corrected Form W-2.
Volunteers. If you perform services as a
volunteer worker for a qualified charily, you may
be abla to deduct some of your costs as a
charitable contribution. See Out-of-Pocket Ex-
penses in Giving Services in Publication 526,
Charitable Contributions, for information on the
expenses you can deduct.
Comments and suggestions. We welcoma
your comments-about this publication and your
suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-8406
Washington, DC 20224
We respond to many lallers by telephone.
Therefore, it would be helpful If you would in-
cluda your daytime phone number, Including the
area code. in your correspondence.
/4 ~ 3D
You can emall us at 'taxfonns@lrs.gov. (The
asterisk must be included In the address.)
Please put "Publications Comment" on the sub-
jeclllne. Although we cannot respond individu-
ally to each emall, we do appreciate your
feedback and will consider your comments as
we revise our lax products.
Tal< questions. If you have a tax quastion,
visit www,irs.gov or call 1-800-829-1040. We
cannot answar lax questions at elthar of the
addresses listed above.
Ordering forms arid publications. Visit
www.irs.gov/formspubs to download forms and
publications, call1-BOo..829-3676, or write to the
National Dlstrlbullon Center at the address
shown under How To Get Tax Help in the back
of this publication.
e
Useful Items
You may want to see:
Publication
o 225 Farmar's Tax Guide
o 529 Miscellaneous Deductions
o 535 Business Expenses
o 946 How To Depraciate Property
o 1542 Per Diem Rates
Form (end Instructions)
o Schedule A (Form 1040) Itemized
Deductions
o Schedule C (Form 1040) Profit or Loss
F rom Business
o Schedule C-EZ (Form 1040) Net Profit
. From Business
o Schedule F (Form 1040) Profit or Loss
From Farming
o 2106 Employee Business Expenses
o 2106.EZ Unrelmbursed Employee
Business Expenses
o 4562 Depreciation and Amortization
See chapter 7, How To Get Tax Help, for
information about getting these publications and
forms.
.
1.
Travel
If you temporariiy travel away from your tax
home, you can use this chapter to determine if
you have deductible travel expenses.
This chapter discusses:
. Traveling away from home,
. Temporary assignment or job. and
. What travel expenses are deductible.
It also discusses the standard meal allowance,
rules for travel inside and outside the United
States, luxury water travel, and deductible con-
vention expenses.
e
e
Travel expenses defined, For tax purposes,
travel expenses are the ordinary and necessary
expenses of traveling away from home for your
business, profession, or job,
An ordinary expense is one thai is common
and accepted in your field of trade, business, or
profession. A necessary expense is one that Is
heipful and appropriate for your business. An
expense does not have to be required to be
considered necessary.
You will find examples of deductlble travel
expenses in Table 1-1, later.
Traveling Away From
Home
e
You are traveling away from home If:
. Your duties require you to be away from
the general area of your tax home (defined
later) substantially longer than an ordinary
day's work, and
. You need to sleep or rest to meet the
demands of your work while ENiSy from
home.
this rest requirement is not satisfied by merely
napping in your car. Y6u do not heve to be away
from your tax home for a whole day or from dusk
to dawn as long as your relief from duty is long
enough to get necessary sleep or rest.
Example 1. You are a railroad conductor.
You leave your home tenninal on a regularly
scheduled round-trip run between two cities and
return home 16 hours later. During the run, you
have 6 hours off at your turnaround point where
you eat two meals and rent a hotel room to get
necessary sleep before starting the return trip.
You are considered to be away from home.
Example 2. You are .a truck driver. You
leave your terminal and return to .it later the
same day. You get an hour off at your turn-
around point to eat. Because you are not off to
get necessary sleep and the brief time off is not
an adequate rest period, you are not traveling
away from home.
Members of the Armed Forces. If you are a
member of the U.S. Anned Forces on a perma-
nent duty assignment overseas, you are not
traveling away from home. You cannot deduct
your expenses for meals and lodging. You can-
not deduct these expenses even if you have to
maintain a home in the United States for your
family members who are not allowed to accom.
pany you overseas. If you are transferred from
one permanent duty station to another, you may
have deductlble moving expenses, which are
explained in Publication 521, Moving Expenses.
A naval officer assigned to permanent duty
eboard a ship that has regular eating and living
facilities has a tax home aboard ship for travel
expense purposes.
Travel to Family Home
e
If you (and your family) do not live at your tax
home (defined later), you cannot deduct the cost
of traveling between your tax home and your
family home. You also cannot deduct the cost of
meals and lodging while at your lax home. See
Example 1 that follows.
If you are working temporarily in the same
city where you and.yourfamlly live, you may be
considered as traveling away from home. See
Example 2,. below.
Example 1. You are a truck driver and you
ana your family .live in Tucson. You ere em-
ployed by a trucking firm that has its terminal in
Phoenix. At the end of your long runs, you return
to your home terminal in Phoenix and spend one
niSht there before retuming home. You cannot
deduct any expenses you have for meals and
lodging In Phoenix or the cost of traveling from
Phoenix to Tucson. This is because Phoenix is
your tax home.
Example 2. Your family home Is in Pitts-
burgh, where you work 12 weeks a year. The
rest of the year yoo work for the same employer
In Baltimore. In Baltimore, you eat in restaurants
and sleap In a rooming house. Your salary is the
same whether you are In Pittsburgh or Balti-
more.
Because you spend most of your working
time and eam most of your salary in Baltimore,
thet city is your tax home. You cannot deduct
any expenses you have for meals and lodging
there. However, when you return to work in
Pittsburgh, you are away from your tax home
even though you stay at your family home. You
can deduct the cost of your roundtrip between
Baltimore and Pittsburgh. You can also deduct
your part of your family's living expenses for
meals and lodging while you are living and work-
ing in Pittsburgh.
Tax Home
To detennlne whether you ere traveling away
from home, you must first determine the location
of your tax home.
Generally, your tax home Is your regular
place of business or post of duty, regardless of
where you maintain your family home. It in-
cludes the entire city or general area In which
your business or work is located.
If you have more than one regular place of
business, your tax home is your mein place of
business. See MaIn place of busIness or work,
later.
If you do not have a regular or a main piace
of business because of the nature of your work,
then your tax home may be the place where you
regularly live. See No main plaoe of business or
work, later.
If you do not have a regular place of busi-
ness or post of duty and there is no place where
you regularly live, you are considered an itiner-
ant (a transient) and your lax home is wherever
you work. As an itinerant, you cannot claim a
travel expense deduction because you are.
never considered to be traveling away from
home.
Main place of business or work. If you have
more than one place of work, consider the fol-
lowing when detennlnlng which one Is your main
place of business or work.
. The tolal time you ordinarily spend in each
place.
. The level of your business activity in each
place.
. Whether your income from each place is
significant or insignificant.
I~~ 30
Example; You live in. Cincinnati where you
'have a seasonal job for B months each year and
earn $40,000. You work the other 4 months in
Miami, also at a seesonaljdb, and earn $15,000.
Cincinnati Is your main place of work because
you spend most of your time there and earn
most of your income there.
No main place of business or work. You
may have a.tax home even If you do not have a
regular or main place of work. Your tax home
may be the home where you regularly live.
Factors used to determlna tax home. If
you do not have a regular or main place of
business or work, use the following three factors
to determine where your tax home Is.
1. You perform part of your business in the
area of your main home and use that
home for iodging while doing businass in
the area.
2. You have living expenses at your main
home that you duplicate because your
business requires you to be away from that
home.
3. You have not abandoned the area in which
both your historical place of lodging and
your claimed main home are located; you
have a member or members of your family
living at your main home; or you often use
that home for lodging.
If you satisfy all three factors, your tax home
is the home where you regularly live. If you
satisfy only two factors, you may have a tax
home depending on all the facts and circum-
stances. If you satisfy only one factor, you are an
itinerant; your tax home is wherever you work
and you cannot deduct travel expenses.
Example 1. You are single and live in Bos-
ton in an apartment you renl You have worked
for your employer in Boston for a number of
years. Your employer enrolls you in a 12-month
executive training program. You do not expect to
return to work in Boston after you complete your
training.
During your training, you do not do any work
In Boston. Instead, you receive classroom and
on-the-job training throughout the Untted Slates.
You keep your apartment In Boston and return to
It frequently. You use your apartment to conduct
your personal business. You also keep up your
community contacts in Boston. When you com-
plete your training, you are transferred to Los
Angeles.
You do not satisfy factor (1) because you did
not work in Boston. You satisfy. factor (2) be-
cause you had duplicate living expenses. You
also satisfy faclor (3) because yOU did not aban-
don your apartment in Boston as your main
home, you kept your community contacts, and
you frequently returned to live in your apartment
You have a tax home in Boston.
Example 2. You are an outside salesperson
with a sales territory covering several states.
Your employer's main office is in Newark, but
you do not conduct any business there. Your
work essignments are temporary, and you have
no way of knowing where your future assign-
ments will be located. You have a room in your
married sister's house in Dayton. You stay there
for one or two weekends a year, but you do no
work In the area. You do not pay your sister for
the use of the room.
Chapter 1 Travel
Page 3
You do not satisfy any of the three factors
listed earlier. You are an Itinerant and have no
tax home.
Temporary
Assignment or Job
You may regularly work at your tax home and
also work at another location. It may nof be
practical to retum to your tax home from this
other location at the end of each work day.
Temporary assignment vs. Indefinite assign-
ment. If your assignment or job away from
your main place of work Is temporary, your tax
home does not change. You are considered to
be away from home for the whole period you are
away from your main placa of work. You can
deduct your travel expenses If they otherwise
qualify for deduction. Generally, a temporary
assignment In a single location Is one that is
realistically expected to last (and does in fact
last) for one year or less.
However, If your assignment or job is indefi-
nite, the location of the assignmant or job be-
comes your new tax home and you cannot
deduct your traval expenses while there. An
assignment or job in a single location is consid-
ered indefinite Ifltts realistically expected to last
for more than one year, whether or not It actually
lasts for more than one year.
If your assignment is indefinite, you must
include in your income any amounts you receive
from your employer for living expenses, even If
they are called travel allowances and you ac-
count to. your employer for them. You may be
able to deduct the cost of relocating to your new
tax home as a moving expense. See Publication
521 for more information.
Exception for federal crime Investigations or
prosecutions. If you are a federal employee
participating in a federal crime investigation or
prosecution, you are not subject to the one-year
rule. This means you may be able to deduct
travel expenses even if you are away from your
tax home for more than one year.
For you to qualify, the Attorney General must
certify that you are traveling:
. For the federal govemment,
. In a temporary duty status, and
. To investigate or prosecute, or provide
support services for the investigation or
prosecution of, a federal crime.
You can deduct your otherwise allowable travel
expenses throughout the period of certification.
Determining temporary or Indefinite. You
must determine Whether your assignment is
temporary or indefinite when you start work. If
you expect an assignment or job to last for one
year or less, it is temporary unless there are
facts and circumstances that indicate otherwise.
An assignment or job that is initially temporary
may become indefinite due to changed circum-
stances. A series of assignments to the same
location, all for short periods but that together
cover a long period, may be considered an in-
definite essignment.
The following examples illustrate whether an
assignment or job is temporary or indefinite.
Page 4
Chapter 1 Travel
Example 1. You are a construction worker. .
You live and regularly work in Los Angeles. You
are a member of a trade union in Los Angeles
that heips you get work In the Los Angeles area.
. Because of a shortage of work, you took a job on
a construction project in Fresno. Your job was
scheduled toend in 8 months. The job actually
lasted 10 months.
You realistically expected the job in Fresno
to last 8 months. The job actually did last less
than 1. year. The job is temporary and your tax
home is still in Los Angeles.
Example 2. The facts are the same as in
Example 1, except that you realistically ex-
pected the work in Fresno to last 18 months. The
Job actually was completed in 10 months.
Your job in Fresno Is indefinite because you
realistically expected the work to last longer than
1 year, even though It actuallY lasted less than 1
year. You cannot deduct any travel expenses
you had in Fresno because Fresno became your
tax home.
Example 3. The facts are the same as in
Exemple 1, except that you realistically ex-
pected the work in Fresno to last 9 months. After
B months, however, you were asked to remain
for 7 more months (for a totel actulll stey of 15
months).
Initially, you realistically expected the job in
Fresno to last for only 9 months. However, due
to changed circumstances occurring after 8
months, it was no longer realistic for you to
expect that the job in Fresno would last for one
year or less. You can only deduct your travel
expenses for the first B months. You cannot
deduct any travel expenses you had after that
time because Fresno became your tax home
when the job became Indefinne.
Going home on days off. If you go back to
your tex home from a temporary assignment on
your days off, you are not considered away from
home while you are In your hometown. You
cannot deduct the cost of your meals and lodg-
ing there. However, you can deduct your travel
expenses, including meals and lodging. while
traveling between your temporary place of work
and your tax home. You can claim these ex-
penses up to the amount it would have cost you
to stay at your temporary place of work.
If you keep your hotel room during your visit
home, you can deduct the cost of your hotel
room. In addition, you can deduct your ex-
penses of retuming home up to the amount you
would have spent for meals had you stayed at
your temporary place of work.
Probationary work period. If you take a job
that requires you to move. with the understand.
ing that you will keep the job if your work is
satisfactory during a probationary period, the job
is indefinite. You cannot deduct any of your
expenses for meals and iodging during. the pro-
bationary period.
VVhatTravelExpenses
Are Deductible?
Once you have determined that you are travel-
ing away from your tax home, you can determine
what travel expenses are deductible.
You can deduct ordinary and necessary ex-
penses you have when you travel away from
/ I.P Ob 3-.0
home on business. The type of expense you can
deduct depends on the facts and your circum-
stances.
Table 1-1 summarizes travel expenses you
may be able to deduct. You may have other
deductible travel expenses that are not covered
there, depending on the facts and your circum-
stances.
~ When you travel away from home on
business, you should keep records of
. , . , all the expenses you have., and any
advances you receive from your employer. You
can use a log, diary, notebook, or any other
written record to keep track of your expenses.
The types of expenses you need to record,
along with supporting documenlation, are de-
scribed In Table 5-1 (see chapter 5).
Separating costs. If you have one expense
that includes the costs of meals, entertainment,
and other services (such as lOdging or transpor-
tation), you must allocate that expense between
the cost of meals and entertainment and the cost
of other services. You must have a reasonable
basis for making this allocation. For example,
you must allocate your expenses If a hotel in-
cludes one or more meals in Its room charge.
Travel. expenses for another Individual. If a
spouse, dependent, or other individual goes with
you (or your employee) on a business lriporto a
business convention, you generally cannot de-
duct his or her travel expenses.
Employee. You can deduct the travel ex-
penses of someone who goes with you If that
person:
1. Is your employee,
2. Has a bona fide business purpose for the
travel, and
3. Would otherwise be allowed to deduct the
travel expenses.
e
e
Business associate. if a business associ-
ate travels with you and meets the conditions In
(2) and (3) above, you can deduct the travel
expenses you have for that person. A business
associate is someone with whom you could rea-
sonably expect to actively conduct business. A
business associate can be a current or prospec-
tive (likely to become) customer, client, supplier,
employee, agent, partner, or professional advi-
sor.
Bona fide business purpose. A bona fide
business purpose exists If you can prove a real
business purpose for the individual's presence.
Incidental serVices, such as typing notes or as-
sisting in entertaining customers, are not
enough to make the expenses deductible.
Example. Jerry drives to Chicago on busi-
ness and takes his wife, Linda, with him. Linda is
not Jerry's employee. Linda occasionally types
notes, performs similar services, and accompa-
nies Jerry to luncheons and dinners. The per-
formance of these services does not establish
that her presence on the trip Is necessary to the
conduct of Jerry's business. Her expenses are
not deductible.
Jerry pays $199 a day for a double room. A
single room costs $149 a day. He can deduct the
total cost of driving his car to and from Chicago,
but only $149 a day for his hotel room. If he uses
public transportation, he can deduct only his
fare.
e
Table 1-1. Travel Expenses You Can Deduct
This chart summarizes expenses you can deduct when you travel away from home
for business purposes.
e
IF you have
expenses for... THEN you can deduct the cost of...
transportation travel by airplane, train, bus, or car between your home and your
business destination. If you were provided with a ticket or you are
I riding free as a result of a frequent traveler or similar program, your
cost. is zero. if you travel by ship, see Luxury Water Travel and Cruise
Ships (under Conventions)'for additional rules and limits.
taxi, commuter fares for these and other types of transportation that take you
bus, and airport between:
limousine 1) The airport or station and your hotel, and
2) The. hotel and the work location of your customers or clients, your
business meeting place, or your temporary work location.
baggage and sending baggage and sample or display material between your regular
shipping and temporary work locations.
car operating and maintaining your car when traveling away from home on
business. You can deduct actual expenses or the standerd mileage
rate, as well as business-related tolls and parking. If you rent a car
while away from home on business, you can deduct only the
business-use portion of the expenses.
lodging and meals your lodging and meals if your business trip is overnight or iong
enough that you need to stop for sleep or rest to properly perform your
duties. Meals Include amounts spent for food, beverages, taxes, and
related tips. See Meels for edditi~nal rulas and limits.
cleaning dry cleaning and laundry.
telephone business calls whlla on your business trip. This includes business
communication' by fax machine or other communication devices.
tips tips you pay for eny expenses in this chart.
other other similar ordinary and necessary expenses related to your
business travel. These expenses mightlnciude transportation to or
from a business meal, public stenographer's fees, computer rental
fees, and operating and maintaining a house trailer.
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Meals
You can deduct the cost of meais in either of the
following situetions.
. It is necessary for you to stop for substan-
tial sleep or rest to properly perform your
duties while traveling away from home on
business.
. The meal Is business-related entertain-
ment.
Business-related entertainment Is discussed in
chapter 2. The following discussion deals only
with meals that are not business-related enter-
tainment
lavish or extravagant, You cannot deduct
expenses for meals that are lavish or extrava-
gant An expense is not considered lavish or
extravagant W it is reasonable based on the facts
and circumstances. Expenses will not be disal-
lowed merely because they. are more than a
fixed dollar amount or take place at deluxe res-
taurants, hotels, nightclubs, or resorts.
e
50% limit on meals. You can figure your
meals expense using either of the following
methods.
. Actual cost.
. The standard meal allowance.
Both of these methods are explained below. But,
regardless of the method you use, you generally
can deduct only 50% of the unreimbursed cost
of your meais.
If you are reimbursed for the cost of your
meals, how you apply the 50% limit depends on
whether your employer's reimbursement plan
was accountable or nonaccountable. If you are
not reimbursed, the 50% limit applies whether
the unreimbursed meal expense Is for business
travel or business entertainment. Chapter 2 dis-
cusses the 50% limit in more detail, and chapter
6 discusses accountable and nonaccountable
plans.
Actual Cost
You can use the actual cost of your meals to
figure the amount of your expense before reim-
bursementand application of the 50% deduction
limit. If you use this method, you must keep
records of your actual cost.
Standard Meal Allowance
Generally, you can use the 'standard meal a~
lowance' method as an allemative to the actual
cost method. It allows you to use a set amount
for your daily meals and incidental expenses
(M&IE), instead of keeping records of your ac-
tual costs. The set amount varies depending on
where and when you travel. In this publication.
'standard meal allowance" refers to the federal
rate for M&IE, discussed later under Amount of
//6tJ30
standard meal allowance. If you use the stan-
dard meal allowance, you still must keep rec-
ords to prove the time, place, and business
purpose of your travel. See the recordkeeping
rules for travel in chapter 5.
Incidental expenses. The term "Incidental ex-
penses' means:
. Fees and tips given to porters, baggage
carriers, bellhops, hotel maids, stewards
or stewardesses and others on ships, and
hotel servants in foreign countries,
. Transportation between places of lodging
or business and piaces where meals are
taken, if sullable meals can be obtained at
the temporary duty slle, and
. Mailing costs associated with filing travel
vouchers and payment of employer-spon-
sored charge card billings.
Incidental expenses do not include expenses for
laundry, cleaning and pressing of clothing,lodg-
Ing taxes, or the costs of telegrams or telephone
calls.
Incidental expenses only method. You can
use an optional mathod (Instead of actual cost)
for deducting incidental expenses only. The
amount of the deduction is $3 a day for Inciden-
tal expenses paid or incurred for travel away
from. home In 2005. You can use this method
only if you did not payor incur any meal ex-
penses. You cannot use this method on any day
that you use the standard meal allowance. This
method is subject to the proration rules for par-
tial days. See Travel for days you depart and
return, later in this chapter.
m Federal employees should referto the
, Federal Travel Ragulations at
, . www.gsa..gov.Click on 'Par Diem
Ratas,' then on 'Federal Travel Regulation
(FTR) Gverv/ew" for changes affecting claims
for reimbursement of these expenses.
50% limit may apply. If you use the standard
meal allowance method for meal expenses and
you are not reimbursed or you are reimbursed
under a nonaccountable plan, you can generally
deduct only 50%. of the standard meal allow-
ance. If you are reimbursed under an accounta-
ble plan and you are deducting amounts that are
more than your reimbursements, you can de-
duct only 50% of the excess amount. The 50%
limit is discussed in more detail in chapter 2, and
accountable and nonaccountable plans are dis-
cussed in chapter 6.
m There is no optional standard lodging
r amount similar to the standard maal
. ' , allowance. Yourallowablaiodgingex-
pense deduction is your actual cost. '
Who can. use the standard meal allowance.
You can use the standard meal allowance
whether you are an empioyee or self-employed.
and whether or not you are reimbursed for your
traveling expenses.
Use of the standard meal allowance for other
travel. You can use the standard meai allow-
ance to figure your meai expenses When you
travel in connection wllh investment and other
income-producing property. You can also use it .
to figure your meal expenses when you travel for
qualifying educational purposes. You cannot
use the standard meal aJiowance to figure the
cost of your meals when you travel for medical
or charitable purposes.
Chapter 1 Travel
Page 5
Amount of standard meel allowance. The
standard meal allowance is the federal M&IE
rate. For travel in 2005, the rate for most small
localities in the United States is $31 a day from
January 1, 2005, through Saptember 3D, 2005,
and $39 a day from October 1,2005, through
December 31, 2005.
Most major cities and many other localities in
the Un Ited States are designated as high-cost
areas, qualifying for higher standard meal al-
lowances. These rates are Iistad in Publication
1542, which is available on the Internet at
www.irs.gov.
l-l You can also find this information on
the Internet at www.gsa.gov.Click on
'Per Diem Rates," then select '200S"
for the period January 1, 2005 - Saptember 3D,
2005, and select '2006' for the periOd October 1,
2005 - December 31, 2005. However, you can
apply the rates in effect before October 1, 2005,
for expenses of all travel within the United States
for 2005 instead of the updated rates. You must
consistently use either the rates for the first 9
months of 2005. or the updated rates for the
period of October 1, 2005, through December
31,2005.
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 transpor-
tation industry, however, see Special rate for
transportation worl<Brs, later.
Standard meal allowance for areas outside
the continental United States. The standard
meal allowance rates do not apply to travel in
Alaske, Hawaii, or any other locations outside
the continental United States. The federal per
diem rates for these locations are pUblished
monthly in the Max;mum Traval Per D;em AI-
lowanoes for Foraign Areas.
You can access foreign per diem
rates at www.state.govlmla/alslprdm.
~
~
Your empioyer may have these rates
available, or you can purchase the
publication from the:
Superintendent of Documents
U.S. Government Printing Office
P.O. Box 371954
Pittsburgh. PA 15250-7954
Ei You can aiso order it by calling the
Government Printing Office at
1-202-512-1600 (not a toll-free num-
ber).
Special 1'Ilte 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:
. Directly involves moving people or goods
by airplane, barge, bus, ship, train, or .
truck, and
. Regulariy requires you to travel away from
home and, during any single trip, usually
invoives travel to areas eligible for differ-
ent standard meal allowance rates.
If this applies to you, you can olaim a standard
meal allowance of $41 a day ($46 for travel
outside the continental United States) for 2005.
Using the special rate for transportation work-
ers eliminates the need for you to determine the
Page 6
Chapter 1 Travel
standard meal allowance for every area where
you stop for sleep or rest. If you choose to use
the special rate for any trip, you must 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 you depart for and the day you
retum from a business trip, you must prorate the
standard meal allowance (figure a reduced
amount for each day). You can do sa by one of
two methods. '
. Method 1: You can claim '/, of the stan-
dard meal allowance.
. Method 2: You can prorate using any
method that you consistently apply and
that is in accordance with reasonable busi.
ness practice.
Example. Jen is employed In New Orleans
as a convention pianner. In March, her employer
sent her on a 3-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
Orieans on Friday and arrived baok 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, days of
the standard meal allowance for Washington,
DC: 'I. of the dally rate for Wednesday end
Friday (the deys 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 prac-
tice. For example, she could claim 3 days of the
standard meal allowance even though a federa I
employee would have to use Method 1 and be
limited to only 2'12 days.
Travel in the United States
The following discussion applies to travel in the
United States. For this purpose, the United
States Inciudes the 50 states and the District of
Columbia. The treatment of your travel ex-
penses depends on how much of your trip was
business related and on how much of your trip
occurred within the United States. See Part of
Trip Outside the United States, later.
Trip Primarily for Business
You can deduct all of your travel expenses if
your trip was entirely business related. If your
trip was primarily for business and, while at your
business destination, you extended your stay for
a vacation, made e personal side trip, or had
other personal activities, you can deduct your
business-related travel expenses. These ex-
penses include the travel costs of getting to and
from your business destination and any
business-related expenses at your business
destination.
Example. You work in Atlanta and take a
business trip to New Orleans. On your way
home, you stop in Mobile to visit your parents.
You spend $1,070 for the 9 days you are away
from home for travel, meals. lodging, and other
travel expenses. If you had not stopped in Me-
/g 00 3D
bile, you would have been gone only6 days, and
your total oost would have been $920. You can
deduct $920 for your trip, Including the cost of
round-trip transportation to and from New Orle-
ans. The deduction for your meals Is subject to
the 50% limit on meals mentioned eariier.
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Trip Primarily for
Personal Reasons
If your trip was primarily for personal reasons,
such as a vacation, the entire cost of the trip is a
nondeductible personal expense. HoWever, you
can deduct any expenses you have while at your
destination that are directly related to your busi-
ness.
A trip to a resort or on a cruise ship may be a
vacation even if the promoter advertises that it is
primarily for business. The scheduling of inci-
dental business activities during a trip, such as
viewing videotapes or attending lectures dealing
with general subjects, will not change what is
really a vacation into a business trip.
Part of Trip Outside
the United States
If part of your trip is outside the United States,
use the rules described. later in this chapter
under Travel Outside the United states for that
part of the trip. For the part of your trip that Is
inside the United States, use the rules for travel
in the United States. Travel outside the United
States does not Include travel from one point in
the United States to another point In the United
States. The following discussion can help you
determine whether your trip was entireiy within
the United States.
Public transportation. If you travel by public
transportation, any place in the United States
where that vehicle makes e scheduled stop is a
point in the United States. Once the vehicle
leaves the last scheduled stop in the United
States on its way to a point outside the United
States, you apply the rules under Travel Outside
the United States.
e
Example. You fiy from New York to Puerto
Rico with a scheduled stop in Miami. You return
to New York nonstop. The flight from New York
to Miami is in the United States, so only the flight
from Miami to Puerto Rico is outside the United
States. Because there are no scheduled stops
between Puerto Rico and New York, all of the
return trip is outside the United States.
Private car. Travel by private car In the United
States Is trevel between points in the United
States, even though you are on your way to a
destination outside the United States.
Example. You travel by car from Denver to
Mexico City and return. Your travel from Denver
to the border and from the border back to Den-
ver is travel in the United States, and the rules in
this section apply. The rules under Travei
Outside the United States apply to your trip from
the border to Mexico City and back to the border.
Travel Outside
the United States
If any part of your business travel is outside the
United States, some of your deductions for the
cost of getting to end from your destination may
e
e
be limited. For this purpose, the United Stales
includes the 50 states and the District of Colum-
bia.
How much of your travel expenses you can
deduct depends in part upon how much of your
trip outside the United States was businSl's re-
lated.
Travel Entirely for Business or
Considered Entirely for Business
You can deduct all your travel expenses of get-
ting to and from your business destination ~ your
trip is entirely for business or considered entireiy
for business.
e
Travel entirely for business. if you travel
outside the United States and you spend the
entire time on business activities, you can de-
duel all of your travel expenses.
Travel considered entirely for business.
Even If you did not spend your entire time on
business activl1ies, your trip is considered en-
tirely for business ~ you meet at ieast one of the
following four exceptions.
Exception 1 . No substantial control.
Your trip Is considered entirely for business if
you did not have substantial control over arrang-
ing the trip. The fact that you control the timing of
your trip does not, by Itself, mean that you have
substantial control over arranging your trip.
You do not have substantial control over
your trip if you:
. Are en employee who was reimbursed or
paid a travel expense allowance,
. Are not related to your employer, and
. Are not a managing executive.
"Related to your employe~' is defined later in
chapter 6 under Per Diem and Car Allowances.
A 'managing executive" is an employee who
has the authority and responsibility, without be-
ing subjact to the veto of another, to decide on
the need for the business travel.
A self-employed person generally has sub-
stantial control over arranging business trips.
Exception 2 - Outside United States no
more than a week. Your trip is considared
entirely for business If you ware outside the
United States for a week or less, combining
businass and nonbusiness aelivlties. One week
means seven consecutive days. In counting the
days, do not countthe day you leave the United
States, but do count the day you retum to the
United States.
e
Example. You traveled to Brussels primarily
for business. You left Denver on Tuesday and
flew to New York; On Wednesday, you flew from
New York to Brussels, arriving the next moming.
On Thursday and Friday, you had business dis-
cussions, and from Saturday until Tuesday, you
were sightseeing. You flew back to New York,
arriving Wednesday afternoon. On Thursday,
you flew back to Denver.
Although you were away from your home in
Denver for more than a week, you were not
outside the United States for more than a week.
This is because the day you depert does not
count as a day outside the United States.
You can deduct your cost of the round-trip
flight between Denver and Brussels. You can
also deduct the cost of your stay in Brussels for
Thursday and Friday while you conducted bus!-
ness. However, you cannot deduct the cost of
your stay in Brussels. from Saturday through
Tuesday because those days were spent on
nonbusiness activities.
Exception 3 - Less tha~ 25% of time on
personal activities. Your trip is considered
entirely for business If:
. You were outside the U niled States for
more then a week, and
. You spent less than 25% of the total time
you were outside the United States on
nonbusiness' activities.
For this purpose, count both the day your trip
began and the day il ended. '
Example. You flew from Seattle 10 Tokyo,
where you spent 14 days on business and 5
days on personal mailers. You then flew back to
Seattle. You spent one day flying in each direc-
tion.
Because only "i" (less than 25%) of your
total tima abroad -was for nonbusiness activities,
you can deduct as travel expenses what it would
have cost you to make the trip If you had not
engaged in any nonbusiness activity. The
amount you can deduct Is the cost of the
round-trip pia"" fare and 16 days of maals (sub-
ject to the 50% limit), lodging, and other related
expenses.
Exception 4 - Vacation not a major consid-
eration. Your trip is considered entirely for
business If you can establish that a personal
vacation wes not a major consideration, even if
you have substantial control over arranging the
trip.
Travel Primarily for Business
1/ you travel outside the United States primarily
for business but spend some of your time on
other activities, yoLi generally cannot deduct all
of your travel expenses. You can only deduct the
business portion of your cost of getting to and
from your destination. You must allocate the
costs between your business and other activities
to determine your deductible amount. Se~
Trevel allocation rules, later.
S You do not have to allocate your
TIP travel expenses If you maet one of the
four exceptions listed earlier under
Travel considered entirely for business. In those
cases, you can deduct the total cost of getting to
and .from your destination.
Travel allocation rules. It yourtrlp outside the
United States was primarily for business, you
must allocate your travel lime on a day-to-day
basis between business days and nonbusiness
days. The days you depart from and return to the
United States are both counted as days outside
the United States.
To figure the deductible amount of your
round-trip travel expenses, use the following
fraction. The numerator (top number) is the total
number of business days outside the United
States. The<ienominator (bottom number) is the
total number of travel days outside the United
States.
Counting business days. Your business
days include transportation days, days your
presence was required, days you spent on busi-
ness, and certain weekends and holidays.
/1 00 30
Transportation day. Count as a business
day any day you spend traveling to or from a
business destination. However, if because of a
nonbusine,ss activity you do' not travei by a direct
route, your business days are the days it would
take you to travel a reasonably direct route to
your business destination. Extra days for side
trips or nonbusiness activities cannot be
counted as business days.
Presence required. Count as a business
day any day your presence Is required at a
particular place for a specific business purpose.
COunt it as a business day even if you spend
most of the day on nonbusiness activities.
Day spent on business. if your principal
activity during working hours is pursuit of your
trade or. business, count the day as a business
day. Also, count as a business day any day you
are prevented from working because of circum-
stances beyond your control.
Certain weekends and holidays. Count
weekends,holidays, and other necessary
standby days as business days ~ they fall be-
tween business days. But If they follow your
business meetings or activity and you remain at
your business destination for nonbusiness or
personal reasons, do not count them as busi-
ness days.
Example 1. Your tax home Is New York
City . You travel to Quebec, where you have a
business appointment on Friday. You have an-
other appointment on the following Monday. Be-
cause your presence was required on both
Friday and Monday, they are business days.
Because the weekend Is between business
days, Saturday and Sunday are counted as
buslnass days. This is true even though you use
the weekend.for sightseeing, visiting friends, or
other nonbusiness activity.
Example 2. If, in Example 1, you had no
business in Quebec after Friday, but stayed until
Monday before starting home, Saturday and
Sunday would be nonbusiness days.
Nonbusiness activity on the way to or from
your business destl'1atlon. If you stopped
for a vacation or other nonbusiness activity ei-
ther on the way from the United States to your
business destination. or on the way back to the
United States from your business destination,
you must allocate part of your travel expenses to
the nonbusiness aelivity.
The pert you must allocate is the amount it
would have cost you to travel between the point
where travel outside the United States begins
and your nonbusiness destination and a return
to the point where travel outside the United
States ends.
You determine the nonbusiness portion of
that e)Cp8nse by multiplying it by a frsction. The
numerator of the fraction is the number of non-
business days during your travel outside the
United States and the denominator is the total
number of days. you spend outside the United
Stales.
Example. You live in New York. On May 4
you fiew to Paris to attend a business confer-
ence that began on May 5. The conference
ended at noon on May 14. That evening you fiew
to Dublin where you visited with friends until the
afternoon of May 21, when you ftew directly
home to New York. The primary purpose for the
trip was to attend the conference.
Chapter 1 Travel
Page 7
If you had not slopped in Dublin, you would
have arrived home the evening of May 14, You
did not meet any of the exceptions that would
allow you to consider your travel entirely for
business. May 4 through May 14 (11 days) are
business days and May 15 through May 21 (7
days) are nonbusiness days.
You can deduct the cost of your meals (sub-
ject to the 50% iimlt), lodging, and other
business-related travel expenses while In Parls.
You cannot deduct your expenses while in
Dublin, You also cannot deduct 7/" of what It
would have cost you to travel round-trip between
New York and Dublin.
You paid $450 to fly from New York to Paris,
$200 \0 fly from Paris to Dublin, and $500 to fly
from Dublin back to New York. Roundtrip airfare
from New York to Dublin would have been $850.
You figure the deductible part of your air
travel expenses by subtracting 7/,. of the
round-trip fare and other expenses you would
have had in traveling directly between New York
and Dublin ($650 x'l" = $331) from your total
expenses in traveling from New York to Paris to
Dublin and back to New York ($450 + $200 +
$500 = $1,150).
Your deductible air travel expense is $819
($1,150 - $331).
Nonbusiness activity at, near, or bayond
business destination. If you had a vacation
or other nonbusiness activity at, near, or beyond
your business destination, you must allocate
part of your travel expenses to the nonbusiness
activity .
The part you must allocate is the amount it
would have cost you to travel between the point
where travei outside the United States begins
and your business destination and a return to
the point where travel outside the United States
ends.
You determine the nonbusines.s portion .of
that expense by multiplying It by a fraction. The
numerator of the fraction is the number of non-
business days during your travel outside the
United Stales and the denominator is the total
number of days you spend outside the United
Stales.
None of your travel expenses for nonbusi-
ness activities at, near, or beyond your business
destination are deductible.
example, Assume that the dates are the
same as in the previous example but that in-
stead of going to Dublin for your vacation, you fly
to Venice, Italy, for a vacation.
You cannot deduct any part of the cost of
your trip from Paris to Venice and return to Paris.
In addition, you cannot deduct '/" of the airfare
and other expenses from New York to Paris and
bacl<lo New York.
You can deduct "/" of the round-trip plane
fare and other travel expenses from New York to
Paris, plus your meals (subject to the 50% limit).
iodging, and any other business expenses you
had in Paris. (Assume these expenses total
$900). If the round-trip plane fare and other
travel-related expenses (such as fooel during the
trip) are $800 from New York to Paris. you can
deduct travel costs of $489 ('1/18 x $800), plus
the full $900 for the expenses you had in Paris.
Other methods. You can use another method
of counting business days if you establish that it
more clearly reflects the time spent on other
than business activities outside the United
States.
Page 8
Chapter 1 Travel
Travel Primarily for Personal
Reasons
If you travel outside the United States prlmartly
for vacation or for Investment purposes, the en-
tire cost of the trip is a nondeductible personal
expense. If you spend some time attending brief
professional seminars.or a continuing education
program, you can deduct your registration fees
and other expenses you have that are directly
related to your business;
Example. The university from which you
graduated has a continuing education program
for members of Its alumni association. This pro-
gram consists of trips to varlous foreign cOun-
tries where academic exercises and
conferences are set up to acquaint individuals In
most occupations with selected faclllties In sev-
eral regions of the world. HOwever, none of the
conferences are directed toward specific occu-
pations or professions. It is up to each partici-
pant to seek out sPf'lcialists and organizational
settings appropriata to his or her occupational
Interests.
Three-hour sessions are held each day over
a 5-day period at each of the selected overseas
facilities where participants can meet with indi-
vidual practitioners. These sessions are com-
posed of a variety of activities including
workshops, mini-lectures, role playing, skill de-
velopment, and exercises. Professional confer-
ence directors schedule and conduct the
sessions. Participants can choose those ses-
sions they wish to attend.
You can participate in this program since you
are a member of the alumni association. You
and your family take one of the trips. You spend
about 2 hours at each of the planned sessions.
The rest of the time you go touring and sightsee-
ing wlthyour family. The trip lasts less than 1
week.
Your travel expenses for the trip are not
deductible since the trip was prtmarily a vaca-
tion. However, registration fees and any other
incidental expenses you have for the five
planned sessions you attended that are directly
. related and beneficial to your business are de-
ductible business expenses. These expenses
should be specifically stated in your records to
ensure proper allocation of your deductible busi-
ness expenses.
Luxury Water Travel
If you travel by ocean liner, cruise ship, or other
form of luxury water transportation for business
purposes, there is a daily limit on the amount
you can deduct. The limit is twice the highest
federal per diem rate allowable at the time of
your travel. (Generally, the federal per diem is
the amount paid to federal government employ-
ees for daily living expenses when they travel
away from home. but in the United States, for
business purposes.)
Dally limit on luxury water travel. The high-
est federal per diem rate allowed and the daily
limit for luxury water travel in 2005 Is shown In
the following tabie.
:;;0 00 3D
Highest Daily limit
2005 Federal on Luxury
~ Per Diem Water Travel
Jan. 1 - March 31 $296 $592
April 1 - April 30 228 456
May 1 - June 30 251 502
July 1 - August 31 246 492
Sept 1 - Sept. 30 259 518
Oct. 1 - Nov. 30 290 580
Dee. 1 - Dec. 31 344 688
e
example; Caroline, a travel agent, traveled
by ocean liner from New York to London, Eng-
land, on business in May. Her exPense for the
6-day cruise was $3,500. Caroline's deduction
for the cruise cannot exceed $3,012 (6 days x
$502 dally limit).
Meals and entertainment. If your expenses
for luxury water travel include separately staled
amounts for meals or entertainment, those
amounts are subject to the 50% limit on meals
and entertainment before you apply the daily
limit For a discussion of the 50% limit, see
chapter 2.
Example. In the previous exampie,
Caroline's luxury water travel had a total cost of
$3,500. Of that amount, $1.600 was separately
stated as meals and entertainment. Caroline,
who is self-employed, is not reimbursed for any
of her travel axpenses. Caroline figures her de-
ductible travel expenses as follows.
Meels and entertainment. . . . .. $1,600
50% limit. . ... . . . . . . . . . . .. x .50
Ailowable meals & entertainment $ 800
Other trBvel expenses ... . . . . + 1.900
Allowable cost before the daily limit. . .. $2,700
Dally iimlt for May 2005 ...... $ 502
Times number of days .. . . . . . ~
Maximum luxury water travel deduction $3,012
Amount of allowable deduction . . . . .$2.700
Caroline's deduction for her cruise is limited to
$2,700, even though the limit on luxury water
travel Is higher.
Not separately stated. If your meal or en-
tertainment charges are not separately stated or
are not ciearly identifiable, you do not have to
allocate any portion of the total charge to meals
or entertainment.
e
Exceptions
The dally limit on luxury water travel (discussed
earlier) does not apply to expenses you have to
attend a convention, seminar, or meeting on
board a cruise ship. See Cruise Ships under
Conventions Held Outside the North American
Area.
Conventions
You can deduct your travel expenses when you
attend a convention if. you can show that your
attendance benefits your trade or business. You
cannot deduct the travel expenses for your fam-
ily.
If the convention is for investment, political,
sociai, or other purposes unrelated to your trade
or business, you cannot deduct the expenses.
e
m
.
Your appointment or election as e
delagete does not, in itself. determine
whether you can deduct travel ex-
penses. Yo.u can deduct your trevel expenses
only if your attendance is connected to your own
trade or business.
Convention agenda. The convention agenda
or program generally shows the purpose of the
convention. You can show your attendance at
the convention benefits your trade or business
by comparing the agenda with the official duties
and responsibilities of your position. The agenda
does not have to deal specifically with your offi~
cial duties and responsibilities; It will be enough
If the agenda Is so related to your position that it
shows your attendance was for business pur-
poses.
Conventions Held Outside
the North American Area
You cannot deduct expenses for attending a
convention, seminar, or simlsr meeting held
outside the North American area unless:
. The meeting is directly related to your
trade or business, and
. It is as reasonabie to hold the meeting
outside the North American area as in It.
If the meeting meets these requirements. you
also must satisfy the rules for deducting ex-
penses for business trips in general, discussed
earlier under Travel Outside the Unlter! States.
e
North American area. The North Amerioan
area includes the following locations.
American Samoa
Antigua and Barbuda
Baker Island
Barbados
Bermuda
Canada
Costa Rica
Dominica
Dominican Republic
Grenada
Guam
Guyane
Honduras
Howland Island
Jamaica
Jarvis Island
Johnston Island
Kingman Reef
Marshall Islands
Mexico
Micronesia
Midway Islands
Northem Mariana
Islands
Palau
Palmyra
Puerto Rico
Saint Lucia
Trinidad and Tobago
USA
U.S. Virgin Islands
Weka Island
The North American area also inciudes U.S.
islands, cays, and reefs that are possessions of
the United Slates and not part of the fifty states
or the blstrict of Columbia.
.
Reasonableness test. The following factors
are taken into account to determine if it was
reasonable to hold the meeting outside the
North American area.
. The purpose of the meeting and the activi-
ties taking piace at the meeting.
. The purposes and activities of the spon-
soring organizations or, groups.
. The homes of the active members of the
sponsoring organizations and the places
at which other meetings of the sponsoring
organizations or groups have been or will
be held.
. Other relevant factors you may present.
Cruise Ships
You can deduct up to $2,000 per year of your
expenses of attending conventions, seminars,
or similar meetings held on cruise ships. All
ships that sail are considered cruise ships.
You can deduct these expenses only if all of
the following requirements are met.
1. The convention, seminar, or meeting is di-
rectly related to your trade or business.
2. The cruise ship is a vessel registered in
the United Slates.
3. All of the cruise ship's ports of call are in
the United Slates or In possessions of the
United States.
4. You attach to your return a written state-
ment signed by you that includes Informa-
lion about:
a. The total days of the trip (not including
the days of transportation to and from
the cruise ship port),
b. The number of hours each day that you
devotad to scheduled business acllvi-
ties, and
c. A program of the scheduled business
activities of the meeting.
5. You ettach to your return a written state-
ment signed by an officer of the organiza-
tion or group sponsoring the meeting that
includes:
a. A schedule of the business activities of
each day of the meeting, and
b. The number of hours you attended the
scheduled business activities.
2.
Entertainment
.You may be able to deduct business-relatad
entertainment expenses you have for entertain-
ing a client, customer, or empioyee. The rules
and definitions are summarized In Table 2-1.
You can deduct entertainment expenses
only if they are both ordinary and necessary and
meet one of the following tests.
. Directly-related test.
. Associated test.
Both of these tests are explained later under
What Entertainment Expenses Are Deductible.
An ordinary expense is one that is common
and accepted in your field of trade, business, or
profession. A necessary expense is one that is
helpful and appropriate for your business. An
expense does not have to be requirad to be
considered necessary.
m The amount you can deduct for enter-
. tainment expenses may be limiter!.
" Generally, you can deduct only 50%
of your unreimbulSed entertainment expenses.
This limit is discussed later under 50% Limit.
{)..I CD. 30
o
Crlil) dOes and membership fees. You can-
not deduct dues (including initiation fees) for
membership in any club organized for:
. Business,
. Pleasure,
. Recreation, or
. Other social purpose.
This rule applies to any membership organiza-
tion If one of Its principal purposes is either:
. To conduct entertainment activities for
members or their guestS, or
. To provide members or their guests. with .
access to entertainment fecilities, dis-
cussed latar.
The purposes and activities of a club, not Its
name, will determine whether or not you can
deduct the dues. You cannot deduct dues paid
to:
. Country clubs,
. Golf and athletic clubs,
. Airline clubs,
. Hotel ciubs, and
. Clubs operated to provide meals under cir-
cumstances generaUy considered to be
conducive to business disCussions.
Entertainment facilities. GeneraUy. you can-
not deduct any expense for the use of an enter-
tainment facility. This includes expenses for
depreciation and operating costs such as rent,
utilities, maintenance, and protection.
An entertainment facility is any property you
own, rent, or use for entertainment. Examples
include a yacht. hunting lodge, fishing camp,
swimming pool, tennis court, bowling alley, car.
airplane, epartment, hotel suite, or home in a
vacation resort.
Out-of-pocket expenses. You can deduct
out-of-pocket expenses, such as for food and
beverages, catering, gas, end fishing bait, that
you provided during entertainment at e facility.
These are not expenses for the use of an anter-
tainment facility. However, these expenses are
subject to the dlrectly-reiated and associated
tests and to the 50% limit, all discussed later.
Gift or entertainment. Any Item that might be
considered either a gift or entertainment gener-
ally will be consid.ered entertainment. However,
if you give a customer packaged food or bever-
ages that you intend Ihe customer to use at a
later date, treat It as a gift.
If you give a customer ticketS to a theater
performance or sporting event and you do not go
with the customer to the performance or event,
you have a choice. You can treat the tickets as
either a gift or entartainment, whichever is to
your advantage.
You can change your treatment of the tickets
at a later date by filing an amended return.
Generally, an amended return must be filed
within 3 years from the date the original return
was fiied or within 2 years from the time the tax
was paid, whichever is later.
If you go with the" customer to the event. you
must treat the cost of the tickets as an entertain-
ment expense. You cannot choose, in this case,
to treat the tickets as a gift.
Chapter 2 Entertainment
Page 9
What Entertainment
Expenses
Are Deductible?
This section explains differenttypes of entertain-
ment expenses that you may be able to deduct.
It also explains the direelly-related test and the
associated test
Entertainment Entertainment Includes any
activity generally corisldered to provide enter-
tainment, amusement, or recreallon. Examples
include entertaining guests at nightclubs; at so-
ciel, athletic, and sporting clubs; at theaters; at
sporting events; on yachts; or on hunting, fish-
ing, vacation, and similar trips.
Enter1ainment also may include meeting per-
sonal,li'!ins. or family needs of individuals, such
as providing meals, a hotel suite, or a car to
customers or their families.
A meal as 8 form of entertainment Enter-
tainment Includes the cost of a meal you provide
to a customer or client, whether the meal Is a
part of other enIertalnrnent or by Itself. A meal
expense includes the cost of food, beverages,
taxes, and tips for the meal. To deduct an
entertainment-related meal, you or your em-
ployee must be present when the food or bever-
agas are provided.
m You cannot claim tha cost of your
! meal both es an entertalnmant ex-
, pense and as a travel expense.
rl~
Meals sold In the normal course of
your business are not considared en-
tertainment.
Deduction may depend on your type of
business. Your kind of business may deter-
mine If a particular activity is considered enter-
tainment. For example, if you are a dress
designer and have a fashion show to introduce
your new designs to store buyers, the show
generally is not considered entertainment. This
is because fashion shows are typical in your
business. But, If you are an appliance distributor
and hold a fashion show for the spouses of your
retellers, the show generally is considered en-
tertainment.
Separating costs. If you have one expense
that includes the costs of entertainment, and
other selVices (such as lodging or transporta-
tion), you must allocate thet expense between
the cost of entertainment and the cost of other
services. You must have a reasonable basis for
making this allocation. For example, you must
allocate your expenses If a hotel includes enter-
tainment in Its lounge on the same bill with your
room charge.
Taking turns paying for meals or entertain-
ment. II a group of business acquaintances
take turns picking up each others' meal or enter-
tainment checks without regard to whether any
business purposes are served, no member of
the group can deduct any part of the expense.
lavish or extravagant expenses. You can-
not deduct expenses for entertainment that are
lavish or extravagant. An expense is not consid-
ered lavish or extravagant if It is reasonable
considering the facts and circumstances. Ex-
penses will not be disallowed just because they
Page 10
Chapter 2 Entertainment
are more than a fixed dollar amount or take
place at deluxe restaurants, hotels, nightclubs,
or resorls.
Allocating between business and
nonbusiness. If you entertain business and
nonbusiness individuals at the same event, you
must divide your entertainment expenses be-'
tween business and nonbusiness. You can de-
duct only ihe business pari. If you cannot
establish the part of the expense for each per-
son participating, allocate the expense to each
participant on a pro rata basis.
Example. You entertain a group of individu-
als that includes yourself. three business pros-
pects, and seven social guests. Only '/11 of the
expense qualifies as a business entertainment
expense. You cannot deduct the expenses for
the seven social guests because those costs are
nonbusiness expenses.
Trade essoclatlon meetings. You can de-
duct entertainment expenses that are direelly
related to and necessary for attending business
meetings or conventions of Certain exempt orga-
nizations if the expenses of your attendance are
related to your aellve trade or business. These
organizations Include business leagues, cham-
bers of commerce, real estate boards,' trade
associations, end professional essociatlons.
Entertalnmerlt tickets. Generally, you cennot
deduct more than the face value of an entertain-
ment ticket, even II you paid a higher price. For
example, you cannot deduct service fees you
pay to ticket agencies or brokers or any amount
over the face value of the tickets you pay to
scalpers.
Exception for events that benefit char/fa-
ble o'1lanlzatlons. Different rules apply when
the cost of a ticket to a sports event benefits a
charitable organization. You can take. into ac-
count the full cost you pay for the ticket, even II it
is more than the face value, If all of the following
conditions apply.
. The event's main purpose is to benefit a
qualified charitable organization.
. The entire net proceeds go to the charity.
. The event uses volunteers to perform sub-
stantially all the event's work.
S The 50% limit on entertainmant does
TIP not apply to any expense for a pack-
age deal that includas a tickat to such
e charitable sports event.
Example 1. You purchase tickets to a golf
tournament organized by the local volunteer fire
company. All net proceeds will be used to buy
new fire equipment. The volunteers will run the .
tournament You can deduct the entire cost of
the tickets as a business expense If they other-
wise qualify as an entertainment expense.
Example 2. You purchase tickets to a col-
lege football game through a ticket broker. After
having a business discussion, you take a client
to the game. Net proceeds from the game go to
colleges that qualify as charitable organizations.
However, since the colleges also pay individuals
to perform services, such as coaching and
recruiting, you can only use the face value of the
tickets In detel1T1inlng your business deduction.
Skyboxes and other private luxury boxes. If
you rent a skybox or other private iuxury box for
;J:J-. o-6~O
more than one event at the same sports arena,
you generally cannot deduct more than the price
of a nonluxury box seat ticket.
To determine whether a s!<ybox has been .
rented for more than one event, count each
game or other performance as one event. For
example, renting a skybox for a series of playoff
games is considered renting it for more than one
event. All skyboxes you rent in the same arena,
along w~h any rentals by related parties, are
considered in making this determination.
Retated parties Include:
. Family members (spouses, ancestors,and
lineal descendants),
. Parties who have made a reciprocai ar-
rangement invaMng the sharing of
skyboxes.
. Related corporations.
. A partnership and Its principal partners,
and
. A corporation and a partnership with com-
mon ownership.
Example. You pay $3,000 to rent e 10-5eat
skybox at Team Stadium for three baseball
games. The cost of regular nonluxury box seats
at each event Is $20 a seat. You can deduct
(subject to the 50% limit) $600 ((10 seats x $20
each) x 3 events).
Food and beverages In skybox _rs. If
expenses for food and beverages are separately
staled, you can deduct these expenses in addi-
tion to the amounts allowable for the skybox.
subject to the requirements and limits that apply.
The amounts separately stated for food and
beverages must be reasonable. YoU cannot in-
flate tha charges for food and bev~rages to
avoid the limited deduction for skybox rentals.
e
Directly-Related Test
To meet the directly-related test for entertain-
ment expenses (including entertainment-related
meals), you must show that: .
. The main purpose of the combined busi-
ness and entertainment was the active
conduct of business,
. You did engage in business with the per-
son during the entertainment period, and
. You had more than a general expectation
of gelling income or some other specific
business benefit at some future time.
Business is generally not considered to be the
main purpose when business and entertainment
are combined on hunting or fishing trips. or on
yachts or other pleasure boats. Even If you show
that business was the main purpose, you gener-
ally cannot deduct the expenses for the use of
an enter1ainment facility. See Entartainment fa-
cilities eariier in this chapter.
You must consider all the faels, including the
nature of the business transacted and the rea-
sons for conducting business during the enter-
tainment. Itis not necessary to devote more time
to business than to entertainment. However, if
the business discussion is only Incidental to the
entertainment, the entertainment expenses do
not meet the directly-related test.
.
Table 2-1. When Are Entertainment Expenses Deductible?
General rule You can deduct ordinary and necessary expenses to entertain a
client, customer, or employee if the expenses meet the
directly-related test or the associated test.
Definitions . . Entertainment Includes any activity generally considered to
provide entertainment, amusement, or recreation, and includes
meals provided to a customer or client.
. An ordinary expense is one that is common and accepted in your
field of business, trade, or profession.
. A necessary expense is one that is helpful and appropriate,
although not necessarily required, for your business.
Tests to be met Directly-related test
. Entertainment took place in a clear business setting, or
. Main purpose of entertainment was the active conduct. of
business, and
. You did engage in business with the person during the
entertainment period, and
You had more than a general expectation of getting income or
some other specrric business benefit.
Associated test
. Entertainment is associated with your trade or business, end
. Entertainment direotly precedes or follows a substantial business
discussion.
Other rules . You cannot deduct the cost of your mesl as an entertainment
expense If you are claiming the meal as a travel expense.
. . You cannot deduct expenses that are lavish .or extravagant under
the circumstances.
. You generally can deduct only 50% of your unreimbursed
entertainment expenses (see 50% Umit).
.
e
S You do not have to show that busi-
TIP nass incoma orothar business benefit
actually resulted from each entertain-
ment expense.
Clear business setting. I! the entertainment
takes place in a claar business setting and is for
your business or work, the expenses are consid-
ered directly related to your business or work.
The following situations are examples of enter-
tainmentln a ciear business setting.
. Entertainment in a hospitality !'Porn at a
convention where business goodwlllls
created through the display or dls.cussion
of business products.
. Entertainment that is mainly a price rebate
on the sale of your products (such as a
restaurant owner providing an occasional
free meal to a loyal customer).
. Entertainment of a clear business nature
occurring under circumstances where
there is no meaningful personal or social
relationship between you and the persons
entertained. An example is entertainment
of business and civic leaders at the open-
ing of a new hotel or play when the pur-
pose is to get business publicity rather
than to create or maintain the goodwill of
the persons entertained.
.
Expenses not considered directly related.
Entertainment expenses generally are not con-
sidered direclly related if you are not there or in
situations where there are substanllal distrac-
tions that generally prevent you from actively
conducting business. The following ere exem.
pies of situations where there are substantial
distractions.
. A meeting or discussion at a nightclub,
theater, or sporting event.
. A meeting or discussion during what is
essentially a social gathering, such as a
cocktail party.
. A meeting with a group that includes per-
sons who are not business associates at
places such as cocktail lounges, country
clubs, gol! clubs, athletic clubs, or vacation
resorts.
Associated Test
Even If your expenses do not meet the
dlrectly.related test, they may meet the associ-
ated test.
To meet the associated test for entertain-
ment expenses Onciuding entertainment-reiated
meels), you must show that the entertainment is:
. Associated with the active conduct of your
trade or business, and
. Directly before or after a substantial busi-
ness discussion (defined later).
d30030
Associated WIth trade or business. Gener-
ally, an expense is associated with the active
conduct of your trade or business if you can
show that you had a clear business purpose for
having the expense. The purpose may be to get
new business or to encourage the continuatiqn
of an existing business relationship.
Substantial business discussion. Whether
a business discussion is substantial depends on
the facts of each case. A business discussion
will not be considered substantlel unless you
can show that you actively engeged in the dis-
cussion, meeting, negotiation. or other business
transaction to get income or some other specific
business benefit.
The meeting does not have to be for any
specified length oltlme, but you must show that
the business discussion was substantial in rela-
tion to the meal or entertainment. It is not neces-
sary that you devote more.time to business than
to entertainment. You do not have to discuss
business during the meal or entertainment.
Meetings at conVllntlons. You are consid-
ered to have a substantial business discussion if
you attend meetings at a convention or similar
event. or at a trade or business meeting spon-
sored and conducted by a business or profes-
sional organization. However, your reason for
attending the convantion or meeting must be to
further your trade or business. The organization
that sponsors the convention or meeting must
schedule a program of business activities that is
the main ectivity of the convention or meeting.
Directly before or after business discussion.
if the entertainment is held on the same day as
the business discussion, tt is considered to be
held directly before or after the business discus-
sion.
I! the entertainment and the business discus-
sion are not held on the same day, you must
cansieer the facts of each case to see I! the
associated test is met. Among the facts to con-
sider are the place, date, and duration of the
business discussion. I! you or your business
associates are from out of town, you must aiso
consider the dates of arrival and departure, and
the reasons the entertainment and the discus-
sion did not take place on the same dey.
Example. A group of business associates
comes from out of town to your place of busi-
ness to hold a substantial business discussion.
I! you entertain those business guests on the
evening before the business discussion, or on
the evening of the day foilowing the business
discussion, the entertainment generally is con-
sidered to be held directly before or after the
discussion. The expense meets the associated
test.
Expenses for spouses. You generally cannot
deduct the cost of entertainment for your spouse
or for the spouse of a customer. However, you
can deduct these costs I! you can show that you
had a clear business purpose, rather than a
personal or social purpose, for providing the
entertainment.
Example. You entertain a customer. The
cost is an ordinary and necessary business ex-
pense and Is allowed under the entertainment
rules. The customer's spouse joins you because
it is impractical to entertain the customer wtthout
the spouse. You can deduct the cost of enter-
taining the customer's spouse. If your spouse
joins the party because the customer's spouse
Chapter 2 entertainment
Page 11
Figure A. Does the 50% Umit Apply to Your Expenses?
. There are exceptions to these rules. See Exceptions to the 50% Limit.
All employees and self-employed persons can use this chart.
Start Here
Were your meal and entertainment axpenses reimbursed?
(Count only reimbursements your employer did not
include in box 1 of your Form W-2. If self-employed,
count only reimbursements from clients or customers that No
are not included on Form 1oe9-MISC, Miscellaneous
Income.)
Ves
If an employee, did you adequately account
to your employer under an accountable plan?
If self-employed, did you provide the payer No
with adequate records? (See chapter 6.)
Yes
---1 Old your expenses exceed the reimbursement? I
No I Yes
~ ~
For the amount reimbursed... For the excess amount...
Your meal and entertainment
expenses are NOT subject to Vour meal and
-. the 50% limit. However, since entertainment expenses ---
the reimbursement was not ARE subject to
treated as wages or as other the 50% limit.
taxable Income. you cannot
deduct the expenses.
Is present,the cost of Ihe entertainmentfor.your
spouse is also deductible.
50% Limit
In general, you can deduct only 50% of your
business-related meal and entertainment ex-
penses. (If you are subject to the Department of
Transportation's "hours of service" limits, you
can deduct a higher percentage. See Individuals
subject to "hours of service" limits, later.)
The 50% limit applies to employees or their
employers, and to self-employed persons (in-
cluding independent contractors) or their ciients,
depending on whether the expenses are reim-
bursed.
FIgure A summarizes the general rules ex-
plained in this section.
The 50% limit applies to business meals or
entertainment expenses you have while:
. Traveling away from home (whether eat-
ing alone or with others) on business.
. Entertaining customers at your piace of
business, a restaurant,or other location,
or
. Attending a business convention or recep-
tion, business meeting, or business lunch-
eon at a club.
Page 12
Chapter 2 Entertainment
Included expenses. Expenses subject to the
50% limit include:
. Taxes and tips relating to a business meai
or entertainment activity,
. Cover charges for admission to a night-
club.
. Rent paid for a room in which you hold a
dinner or cocktail party, and
. Amounts paid for parking at a sports
arena.
However, the cost of transportation to and from
a business meal or a business-related entertain-
ment activity is not subject to the 50% limit.
Application of 50% limit. The 50% limit on
meal and entartainment expenses applies if the
expense is otherwise deductible and is not cov-
ered by one of the exceptions discussed later.
The 50% limit also applies to certain meal
and entertainment expenses that are not busi-
ness related. It applies to meal and entertain-
ment expenses you have for the production of
Income, inciuding rental or royalty income. It
also applies to the cost of meals included in
deductible educationaiexpenses.
When to apply the 50% limit, You apply the
50% limit after determining the amount that
would otherwise quality for a deduction. Vou first
have to determine the amount of meal and en-
tertainment expenses that would be deductible
. . dLji5b30
under the other rules discussed in. this publica-
tion.
Example 1. You spend $100 for a
business-related meal. if $40 of that amount is
not allowable because it is lavish and extrava-
gant, the remaining $60 is subject to the 50%
limit. Your deduction cannot be more than $30
(50% x $60).
EXample 2. Vou purchase two tickets to a
concert and give them to a client. You pur-
chased the tickets through a ticket egent. You
paid $150 for the two tickets, which had a lace
value of $60 each ($120 total). Vour deduction
cannot be more than $60 (50% x $120).
.
Exceptions to the 50% Limit
Generally, business-related meal end entertain-
ment expenses are subject to the 50% limit.
Figure A can help you determine If the 50% limit
applies to you.
Expenses not subject to 5D% limit. Your
meal or entertainment expense Is not subject to
the 50% limit If the expense meets one of the
following exceptions.
1 - Employee's reimbursed .expenses. If
you are an employee, you are not subject to the
50% limit on expenses for which your employer
reimburses you under an accountable plan. Ac-
countable plans are discussed in chapter 6.
2 . Self-employed. If you are self-em-
ployed, your deductible meal and entertainment
expenses are not subject 10 the 50% Umlt if aU of
the foUowing requirements are met.
. V ou have these expenses as an indepen-
dent contractor.
. Your customer or client reimburses you or
gives you an allowance for these ex-
penses in connection with services you
perform.
. You provide adequate records of Ihese ex-
penses to your customer or client. (See
chapter 5.)
e
In lhis case, your client or customer is subject
10 the 50% limit on the expenses.
Example. You are a self-employed attorney
who adequately accounts for meal and enter-
tainment expenses to a client who reimburses
you for these expenses. You are not subject to
the directly-related or associated test, nor are
you subject to the 50% limit. If the client can
. deduct the expenses. the client is subject to the
50% limit.
If you (the contractor) have expenses for
meals and entertainment related to providing
services for a cUent but do not adequately ac-
count for and seek reimbursement from the cli-
ent for those expenses, you are subject to the
directly-related or associated test and to the
50% limit.
3 -Advertising expenses. Vou are not sub-
ject to the 50% limit If you provide meals, enter-
tainment, or recreationai facilities to the general
public as a means of advertising or promoting
goodwill In the community. For example, neither
the expense of sponsoring a television or radio
show nor the expense of distributing free food
and beverages to the general public is subject to
the 50% limit.
e
e
4 . Sale of meals or entert1Jinment. You
are not subject 10. the 50% limit if you actually
sell meals, entertainment, goods and services,
or use offacil~ies to the public. For example, if
you run a nightclub, your expense for the enter-
tainmentyou fumish to your customers, such as
a floor show, is not subject to the 50% limit.
5 . Charitable sports event. You are not
subject to the 50%.limil if you pay for a package
deal that includes a ticket to a qualified charita-
ble sports event For the conditions the sports
event must meel, see Exception for events that
benefrt charitable organizations under Enterlain-
ment tickets, earlier.
e
Individuals subject to "hours of selVice"
limits, You can deduct a higher parcentage of
your meal expenses while traveling away from
your tax homa if the meals take place during or
Inoldent 10 any period subject 10 the Department
of Transportation's "hours of service" limits. The
percentage is 70% for 2005, and it gradually
increases to 80% by the year 2008.
Individuals subject to the Department of
Transportation's "hours of service" limits include
the following persons.
. Certain eir transportation workers (such as
pilots, craw, dispatchers, mechanics, and
control tower operators) who are undar
Federal Aviation Administration regula-
tions.
. Interstate truck operators and bus drivers
who are under Department of Transporta-
tion regulations.
. Certain railroad employees (such as engi-
neers, conductors, train crews, dispatch-
ers, and control operetionll personnel)
who are under Federal Railroad Adminis-
tration regulations.
. Certain merchant marinel"l! who are under
Coast Guard regulations.
3.
Gifts
e
If you give giftll in the COUI"llEl of your trade or
businells, you can deduct all or part of the cost.
This chapter explains the limits and rules for
deducting the costs of gifts.
$25 limit. You can deduct no more than $25
for business gifts you give directly or indirectly to
any one person during your tax year. A gift to a
company that is intended for the eventual per-
sonal use or benefit of a particuiar person or a
limited class of people will be considered an
indirect gift to that particular pel"l!on or to the
individuals within that class of people who re-
ceive the gift.
If you give a gift to a member of a customer's
family, the gift is generally considered to be an
indirect gift to the customer: This rule does not
apply if you have a bona fide, independent busi-
ness connection with that family member and
the gift is not intended for the customer's even-
tual use.
If you and your spouse both give gifts, both of
you are treated as one taxpayer. It does not
matter whether you have separate businesses,
are separately employed, or whether each of
you has an Independent connection with the
recipient. If a partnership gives gifts, the partner-
ship and the partners are treated as one tax-
payer.
Example. Bob Jones selis products to Local
Company. He and his wife, Jan, gave Local
Company three cheese packages to thank them
for their business. They paid $60 for each pack-
age, or $240 total. Three of Local Company's
executives took the packages home for their
families' use. Bob and Jan have no Independent
business relationship with any of the executives'
other family membal"l!. They can deduct a total
of $75 ($25 limit x 3) for the cheese packages.
Incidental costs, Incidental costs, such as
engraving on jewelry, or packaging, insuring,
and mailing, are generally not included in deter-
mining the cost of a gift for purposes of the $25
limit.
A cost is incidental only if It does not add
substantia:! value to the gift. For example. the
cost of gift wrapping is an incidental cost. How-
ever, the purchase of an ornamental basket for
packaging fruit is not an incidental cost If the
value of the basket is substantial compared to
the value of the fruit.
Exceptions. The toliowing items are not con-
sidered gifts for purposes of the $25 limit.
1. An item that costs $4 or less and:
a. Has your name clearly and permanenlly
imprinted on the gift, and
b. Is one of a number of identical items
you Widely distribute.
Examples include pens, desk sets, and
piastic bags and cases.
2. Signs, display reeks, or other promotional
material to be used on the business prem-
ises of the recipient.
Gift or entertainment. Any item that might be
considered either a gift or entertainment gener-
ally will be considered entertainment. However,
if you give a customer packaged food or bever-
ages that you intend the customer to use at a
later date, treat It as a gift.
If you give a customer tickets to a theater
performance or sporting event and you do not go
with the customer to the performance or event,
you have a choice. You can treat the cost of the
tickets as either a gift expense or an entertain-
ment expense, whichever is to your advantage,
You can change your treatment of the tickets
at a later date by filing an amended return.
Generally, an amended return mUll! be filed
within 3 years from the date the original return
was filed or within 2 yeal"l! from the time the tax
was paid, whichever is later.
If you go.with the customer to the event, you
must treat the cost of the tickets as an entertain-
ment expense. You cannot choose, in this case,
to treat the cost of the tickets as.a gift expense.
:;;.-50030
4.
Transportation
This chapter discusses expenses you can de-
duct for business transportation when you are
not traveling ffflay from home as defined in
chapter 1. These expenses Include the cost of
transportation by air, rail, bus, taxi, etc., and the
cost of driving and maintaining your car.
Transportation expenses Include the ordi-
nary and necessary costs of all of the following.
. Getting from one workplace to another in
the coul"l!e of your business or profession
when you are traveling within the city or
general area that is your tax home. Tax
home is defined in chapter 1.
. Visiting clients or customers.
. Going to a business meeting away from
your regular workplace.
. Getting from your home to a temporary
workplace when you have one or more
regular places of work. These temporary
workplaces can be either within the area
ef your tax home or outside that area.
Transportation expenses do not include ex-
penses you have while traveling away from
home overnight. Those expenses ere travel ax-
penses which are discussed in chapter 1. How-
ever, if you use your car while traveling away
from home ovemight. use the rules in this chap-
ter to figure your car axpense deduction. See
Car Expenses, later.
Illustration of transportation expenses.
Figure B illustrates the rules that apply for de-
ducting transportation expenses when you have
a regular or main job away from your home. Yau
may want to refer to it when deciding whether
you can deduct your transportation expenses.
Temporary work location. If you have one or
more regular work locations away from your
home and you commute to a temporary work
location in the same trade or business, you can
deduct the expenses of the daily round-trip
transportation between your home and the tem-
porary location, regardless of distance.
If your employment at a work location is
realistically expected to iast (and does in fact
last) for 1 year or less, the employment is tempo-
rary unless there are facts and circumstances
that would indicate otherwise.
If your employment at a work location is
realistically expected to last for more than 1 year
or if there is no realistic expectation that the
empioyment will last for 1 year or less, the em-
ployment Is not temporary, regardless of
whether It actually iasts for more than 1 year.
If employment at a work location initially is
realistically expected to last for 1 year or less,
but at some later date the employment is realisti-
cally expected to last more than 1 year, that
empioyment will be treated as tempora.ry (un-
less there are facts and circumstances that
would indicate otherwise) until your expectation
changes. It will not be treated as temporary after
the date you determine it will last more than 1
year.
If the temporary work location Is beyond the
general area of your regular place of work and
Chapter 4 Transportation
Page 13
Figure B. When Are Transportation Expenses Deductible?
Most employees and self-employed persons can use .this chart.
(Do not use this chart if your home is your principal piace of business.
See Office in the home.)
Temporary
work location
'" ~~~~
'\:ctible
Never deductible ~
II> \jJ ~_~
~ ~~Y~~bor
A1W8~
deductible
..
.,f"
~ri'";f,,o"
~ t!i-v"i>'
-R0~ do ~-{T
. <i'~"'/~
~
-M.
:Jl.
:Jl.
Second job
Home: The place where you reside. Transportation expenses between your home and
your main or regular place of work are personal commuting expenses.
Regular or main job: Your principal place of business. If you have more than one job,
you must determine which one is your regular or main job. Consider the tima you
spend at each, the activity you have at each, and the income you earn at each.
Temporary work location: A place where your work assignment is realistically
expected to last (apd does in fact last) one year or less. Unless you have a regular
place of business, you can only deduct your transportation expenses to a temporary
work location ~ your metropolitan area.
Second job: If you regularly work at two or more places in one day, whether or not
for the same employer, you can deduct your transportation expenses of getting from
one workplace to another. You cannot deduct your transportation costs between your
home and a second job on a day off from your main job.
you stay overnight, you are traveling away from
home. You may have deductible travel ex-
penses as discussed in Chapter 1.
No regular place of work. If you have no
regular place of work but ordinarily work in the
metropolitan area where you live, yoti can de-
duct dally transportation costs between home
and e temporary work site outside that metropol-
Itan area.
Generally, a metropolitan area Includes the
area within the city limits and the suburbs that
are. considered part of that metropolitan area.
You cannot deduct daily transportation costs
between your home and temporary work sites
within your metropolitan area. These are nonde-
ductible commuting expenses.
Two places of work. If you work at two places
in one day, whether or not for the same em-
ployer, you can deduct the expense of getting
from one workplace to the other. However, If for
some personal reason you do not go directly
from one location to the other, you cannot de-
duct more than the amount it would have cost
you to go directly from the first location to the
second.
Page 14
Chapter 4 Transportation
Transportation expenses you have in going
between home and a part-time job on a day off
from your main job are commuting expenses.
You cannot deduct,them.
Armed Forces reservists. A meeting of an
Armed Forces reserve unit Is a second place of
business If the meeting is held on a day on which
you work at your regular job. You can deduct the
. expense of gelling from one workplace to the
other as just discussed under Two places of
work.
You usually cannot deduct the expense if the
reserve meeting Is held on a day on which you
do not work at your regular job. In this case, your
transportation generally is a nondeductible com-
muting expense. However, you can deduct your
transportation expenses if the location of the
meeting is temporary and you have one or more
regular places of work.
If you ordinarily work in a particular metropol-
itan area but not at any specific iocation and the
reserve meeting is held at a temporary location
outside that metropolitan area, you can deduct
your transportation expenses.
If you travel away from home ovemight to
attend a guard or reserve meeting, you can
~CV30
deduct your travel expenses. These expenses
are discussed in chapter 1.
If you travel more Ihan 100 miles _ay from
home in connection with YOur performance of
services as a member of the reserves, you may
be able to deduct some of your reserve-related
lravel costs as an adjustment 10 gross income
rather than as an Itemized deduction. For more
information, see Armed Forces Reservists Trav-
eling More Then 100 Miles Frori'i Home under
Special Rules, in chapter 6.
Commuting expenses. You cannot deduct
the costs of taking a bus, trolley, subway, ortaxi,
or of driving a car between your home and your
main or regular place of work. These costs are
personal commuting expenses. You cannot de-
duct commuting expenses no maller how far
your home Is from your regular place of work.
You cannot deduct commuting expenses even if
you work during the commuting trip.
Example. You had a telephone installed in
your car. You sometimes use thatlelephone to
make business calls while commuting to and
from work. Sometimes business associates ride
with you to and from work, and you have a
business discussion in the car. These activities
do not change the trip from personal to busi-
ness. You cannot deduct your commuting ex-
penses.
ParkIng fees. Fees you pay to park your car
at your place of business are nondeductible
commuting expenses. You can, however, de-
duct business-related parking fees when visiting
a customer or cliant.
AdvertIsIng dIsplay on osr. Pulling display
malerial that advertises your business on your
car does not change the use of your car from
personal use to business use. If you use this car
for commuting or other personal uses, you still
cannot deduct your expenses for those uses.
esr pools. You cannot deduct the cost of
using your car in a nonprofit car pool. Do not
Include payments you receive from the passen-
gers In your income. These payments are con-
sidered reimbursements of your expenses.
However. if you operate a car pool for a profit,
you must include payments from passengers in
your income. You can then deduct your car
expenses (using the rules in this publication).
Hauling tools or Instruments. Hauling
tools or instruments in your car while commuting
to and from work does not make your car ex-
penses deductible. However, you can deduct
any additional costs you have for hauling tools or
instruments (such as for renting a trailer you tow
with your car).
Union members' trips from s union hsll. If
you get your work assignments at a union hali
and then go 10 your place of work, the costs of
getting from the union hali to your place of work
are nondeductible commuting expenses. Al-
though you need the union to get your work
assignments, you are employed where you
work, not where the union hall is.located.
e
.
OffIce In the home. If you have an office in
your home that qualifies as a principal place of
business, you can deduct your dally transporta-
tion costs between your home and another work
location in the same trade or business. (See
Publication 567, Business Use of Your Home,
for information on determining if your homeof-
fice qualifies as a principal place of business.)
e
e
Examples of deductible transportation. The
following examples show when you can deduct
transportation expenses based on the location
of your work and your home.
Example 1. You regularty work in an office
in the city where you live. Your employer sends
you to a one-week training session at a different
office in the same city. You travel directly from
your home to the training locaUon and return
each day. You can deduct the cost of your daily
round-trip transportation between your home
and the training location.
Example 2. Your principal place of business
is in your home. You can deduct the cost of
round-trip transportation between your qualify-
ing home office and your client's or customer's
place of business.
Example 3. You have no regular office, and
you do not have an office in your home. In this
case, the location of your fi1'st business contact
Is considered your office. Transportation ex-
penses between your home and this first contact
are nondeductible commuting expanses. Trans-
portaUon expenses between your last business
contact end your home are also nondeductible
commuting expenses. Although you cannot de-
duct the costs of these trips, you can deduct the
costs of going from one ciient or customer to
another.
Car Expenses
e
If you use your car for business purposes, you
ordinarily can deduct car expenses. You gener-
ally can use one of the two following methods to
figure your deductible expenses.
. Standard mileage rate.
. Actual car expenses.
-
If you use actual expenses to figure your de-
duction for a car you lease, there are rules that
affect the amount of your lease payments that
you can deduct. See Leasing a Car, later.
In this pubiication, 'car" includes a van,
pickup, or panel truck. For the definition of 'car"
for depreciation purposes, see Car de~ned
under Actual Car Expenses, later.
S You may be entitled to a tax credit for
TIP an electric vehicle or a deduction from
gross income for a part of the cost of a
clean-fuel vehicle that you place in service dur-
ing the yeer. The vehicle must. meet certain
requirements, and you do not have to use It in
your business to qualify for the credit or the
deduction. However, you must reduce your ba-
sis for depreciation of the electric vehicle or
clean-fuel vehicle property by the amount of the
credit or deduction you claim. See Depraciation
Deduction, later, under Actual Car Expenses.
For more information on electric or clean-fuel
vehicles, see chapter 12 of Publication 535.
Rural mall carriers. If you are a rural mall
carrier, you may be able to treat the qualified
reimbursement you received as your allowable
expense. Because the quelified reimbursement
is treated as paid under an accountable plan,
your employer should not include the reimburse-
ment in your income.
If your vehicle expenses are more than the
amount of your reimbursement, you can deduct
the unreimbursed expanses as an Itemized de-
duction on Schedule A (Form 1040). You must
complete Form 2106 and attach it to your Form
1040.
A 'qualified reimbursement" is the reim-
bursement you receive that meels both of the
following conditions.
. It is given as an equipment meintenance
allowance (EMA) to employees of the U.S.
Postal Service.
. It Is at the rate contained in the 1991 col-
lective bargaining agreement. Any later
agreement cannot increase the qualified
reimbursement amount by more than the
rate of Infielion.
See your employer for information on your reim-
bursement. '
m
If you are a rural mail carrier and re-
ceived a qualifiad reimbursement,
you cannot use the standard mileage
rete.
Standard Mileage Rate
You may be able to use the standerd mileage
rate to figure the deductible costs of operating
your car for business purposes. For 2005, the
standard mileage rate tor the cost of operating
your car for business use is:
. 40'1, cenls per mile for the period January
1 through August 31, 2005. and
. 48'1, cents a mile for the period September
1 through December 31, 2005. This rate Is
edjusted periodically.
m
If you use the standard mileage rete
for a year, you cannot deduct your
actual car expanses forthat year. You
cannot daduct depreciation, iease payments,
maintenance and repairs. gasoiine (including
gasoline taxes), oil, insurance, or vehicie regis-
tratiM fees. See Choosing the standard mileage
rate and Standard mileage rate not allowed,
later.
You generally can use the standard mileage
. rate whether or not you are reimbursed and
whether or not eny reimbursement is more or
less than the amount figured using the standard
mileage rate. See chapter 6 for more information
on reimbursements.
Choosing the standard mileage rate. )f you
want to use the standard mileage rate for a car
you own, you must choose to use It In the first
year the car is available for use in your business.
Then in iater yea rs, you can choose to use either
the standard mileage rate or actuel expanses.
If you want \0 use fhe standard mileage rate
for e car you lease, you must use it for the entire
lease period. For leases that began on or before
December 31, 1997, the standard mileage rate
must be used for the entire portion of the lease
period (including renewals) that is after 1997.
If you choose to use the standard mileage
rafe, you are considered to have chosen not to
use the depreciation methods discussed later.
This Is because the standard mileage rate in-
clude.s an allowance for depreciation that is not
expressed in terms of years. If you change to the
actual expenses method in a later year, but
before your car is fully depreciaied, you have to
estimate the remaining useful life of the car and
use straight line depreciation. For more informa-
tion about depreciation included in the standard
~i"b~
mileage rate, see Exception under Methods of
depreciation under Depreciation Deduction,
later.
Standard mIleage rate not allowed. You
cannot use the standard mileage rate If you:
. Use the car for hire (such as a laxi),
. Use five or more cars at the same time (as
In fleet operations),
. Claimed a depreciation deduction for the
car using any method other than straight
line, for example, MACRS (as discussed
leter under Depreciation Deduction),
. Claimed a section 179 deduction (dis-
cussed later) on the car,
.. Claimed the special deprecietlon allow-
ance on the. cer,
. Claimed actual car expenses after 1997
for a car you leased, or
. Are a rural mail carrier who received a
qualified reimbursement. (See Rural meil
carriers under Car Expenses, eartier.)
FIve or more catS. If you own or leese five
or more cars that are used for business at the
same time, you cannot use the standerd mile-
age rate for the business use of eny car. How-
ever, you may be able to deduct your ac:\ual
expanses for operating each of the cars in you r
business. See Actual Cer Expenses, later, for
information on how to figure your deduction.
You are not using five or more cars for busi-
nessatthe same time if you alternate using (use
at different times) the cars for business.
The following examples Illustrate the rules
for when you can and cannot use the standard
mileage rate for five or more cars.
Example 1. Marcie, a salesperson, owns
three cars end two vans that she alternates
using for calling on her customers. She can use
the standard mileage rate for the business mile-
age of the three cars and the two vans because
she does not use them at the same time.
Example 2. Tony end his employees use
his four pickup trucks In his landscaping busi-
ness. During the year, he traded In two of his old
trucks for two newer ones. Tony can use the
standard mileage rate for the business mileage
of all six of the trucks he owned during the year.
Example 3, Chris owns a repair shop and
an Insurance business. He and his employees
use his two pickup trucks and van for the repair
shop. Chris altemates using his two cars for the
insurance business. No one else uses the cars
for business purposes. Chris can use the stan~
dard mileage rate for the business use of the
pickup trucks, van, and the cars because he
never has more than four vehicles used for busi-
ness at the same time.
Example 4. Maureen owns a car and four
vans that are used in her housecleaning busi-
ness. Her employees use the vans and she uses
the car to travel to various customers. Maureen
cannot use the standard mileage rate for the car
or the vans. This is because all fiv.e vehicles are
used in Meureen's business at the same time.
She must use ac:\ual expenses for all vehicles.
Interest. If you are an employee, you cannot
deduct any interest paid on a car loan. ThiS
Chapter 4 Transportation
Page 15
GSA - Domestic Per Diem Rates
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California. FY 06
(October 1, 2005 through September 30, 2006}
Cities not appearing .below may be located within a county for which rates are listed. To determine what count
located in, click here for the National Association of .Counties (NACo) website (a non-federal website).
I
I NOTE: If neither the city nor the county is listed, the location is a standard CONUS destination with a rate o.
I lodging and $39.00 for meals and incidental.~~~~.~.~es (M&IE).
State Tax Rates & Exemotion Forms
Prooerties at Per Diem (FedRoomsl
View a state map with highlighted areas showing where rates listed below apply. Standard CONUS rates appl
Select another State
e
Antioch/Brentwood/Concord/Lafayette/MartinezlPleasant
Hill/Richmond/San RamonlWalnut Creek
.._. _M_.h.,.." ... ........,......._..............<............_....0..._.,,'...__.~....,_......._"_..,.,.,,.. '. ~
BakersfjeldlDelano (Naval Weapons Center and
. Ordinance Test Station, China Lake)
,._....__._n.'......,....................._".................__'n'.."....................,..,.............. . ,-,_._.',__.
i Barstow/OntarioNictorville
. ...~.~~icial~.ix?~!~~i~~~d.l'\lac~::il~El~.allejo
: Brawley/Calexico/EI Centrollmperial
l-..-_~_.__._______-_ _._".~..'-
: Chico/Oroville
!.._!?~~~Elr__~__~..~_?~El!.l1_~El!:.1.~.l..___._...
i Chico/Oroville
...J~?~_e_~.~er 20 - ~~!Elrrl~e.::..30L_____
: Clearlake
~,...~... ,__ .~....". ._. ......__.u
L__~El~!.~. V~I~ey___._______.__....._....
\_.F.resno -------.---.
. Los Angeles
Mammoth Lakes
~,?!?ber_} - Nove~E~L30)______.__..___.__
i Mammoth Lakes
L,<Dece~bElr1 - Janu~'Y_ 31)
i Mammoth Lakes
I (February 1 - September 30)
r-ff.__......._.'--:_M__- ~__~Mw__~_.~",~",~'~"~'_"'_'
Kern
San
Bernardino
'^'~ "'N~__'_~______'__'
Solano
e
ATTACHMENT 5
GSA - Domestic Per Diem Rates
Page 2 of3
/}q 00 3-0
San Mateo/Foster
Santa Barbara
1 - June
Santa Barbara
1 -
Santa Barbara
(S.~pteTl1~~r.1...~ .~ElP~~Tl1b_El!_3._~)..
Santa Cruz
(~~~~El':...1_~ MaY~!L_.._._______
Santa Cruz
1 -
Santa Cruz
. m (:?ElpteTl1?El!:.1.~.:?epteTl1~er 30)
Santa Monica
151
e
Mill Valley/San Rafael/Novalo/Corte
MadEl~I:?~~~~lit()rr.ib~~()~~~~~pu.r ............................ .. ......
Modesto
M<:n.!El!El~."_...._."m___mmm.._.".._"_____m._.._._. .
~~P~__.___m_.m__._____.
Oakhursl
Oakland
.....'~n"..'_~_~_~~___.~__mH____""____^____~...-._-_>
Palm Springs
(October 1 - December 31
Palm Springs
(Jm~.n,~~!2'm!:!'2ril 30t
Palm Springs
(May.1:..:?ElPtElTl1~Elr.~9L..
Point Arena/Gualala
Sacramento
San Diego
(October 1 - December 31)
_....... ...,~._." . On ,<. _"""~'_""U""M".' . . ... . .... .. ... . n..........
San Diego
..E~n,uary_.!_:.~~~~.____
San
191
e
184
194
148
San Mateo
Santa Barbara
140
159
Santa Barbara
176
159
124
Santa Rosa
South Lake Tahoe
1 - December
South Lake Tahoe
(January 1 - June 30)
.. . h "._ _,..,~,_.~_,..,_..,_.
South Lake Tahoe
1 -
Stockton
e
Allo/San Jose
Nevada 152
http://www.gsa.gov/Portal/gsa/ep/contentView.do?queryY ear=2006&contentType=GSA... 12/15/2005
GSA - Domestic Per Diem Rates
Page 3 of3
30r50~
West Sacramento
Yosemite National Park
(October 1 - October
Yosemite National Park
(November 1 - December 31
Yosemite National Park
1 -
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