The IRS recently issued Rev Proc 2007-62 for 2008 per diem rates, which will remain at $52 per day.
The IRS previously issued Rev Ruling 2006-56 that applies to IRS audits to be conducted for 2007 and thereafter, that addresses documentation and testing of per diem payments.
Bell recommends to clients that M&IE (meals and incidentals expenses) only per diem allowance be used by the transportation carrier, since lodging is usually provided in kind since most tractors have sleepers, and the expectation is that the driver will sleep in the tractor, and not at the motel. If the driver does sleep at a hotel, then, company policy should be to pay for lodging by direct payment or reimburse the driver for lodging upon receipt provided.
M&IE comes in two methods, Rate per mile x miles driven per day, or a flat rate per day of $52, per 24 hour period.
Rate per mile x miles driven per day is a higher audit risk due to variables of miles traveled and rate per mile paid. Bell recommends usage of the flat rate per day up to $52 per day.
Bell and Company has been analyzing the recent IRS directive regarding audit processes to track per diem, and will be working with our clients’ one on one, to assist in meeting documentation and testing requirements.
A brief overview of required compliance steps to be taken by management is as follows:
· Total disallowance of all per diem payments will be the penalty, if overpayments of per diem amounts are not handled according to the IRS rules and regulations.
· The IRS wants proof that you pay the current per diem daily, and you can provide proof of time, place, and business purpose, for paying the per diem. An exception to paying per diem daily is that transportation companies can test per diem payments on a periodic basis, but not less than monthly. You have to test the periodic vs. daily system to remain in compliance. If you pay excess per diem, you must add to W-2 wages and reduce per diem.
· To test periodic (monthly) compliance, Bell will provide to its clients a testing template for compliance for either the rate per mile method or the daily method, which should meet the periodic testing requirements.
· For document retention purposes Bell will assist client in determining which methods of tracking the drivers’ days works best for them; also where to store the information and in what format, for future retrieval.
For more info on the new per diem substantiation requirements give Richard Bell or Jeff Lovelady a call 501.753.9700.
