Job on a ship

[pmedders]

I have a client that had a new job in 2005 where he goes on a ship to work in different parts of the US for a month or two at a time. He was told by another employee that his tax preparer gives him a deduction for staying on the ship. Is there some kind of deduction available that I am unaware of. It sounds like it was a per diem as his fellow employee said it was a daily rate. I asked my client if he was out of pocket living expenses while he was on the ship and he said no. Am I missing something??

[Bees Knees]

I agree it is per diem for meals. TTB, page 8-9 says workers involved in moving people or goods by airplane, barge, bus, ship, train, or truck are considered transportation industry workers. They get a special per diem rate for meals, listed on page 8-5 in TTB. They are also given a higher deduction for meals, 70% instead of 50% in 2005, 75% for 2006 and 2007, and 80% for 2008.

[Bees Knees]

Also keep in mind, the per diem rate for meals is a standard meal deduction if the employer does not reimburse the employee for meals. So if meals are provided for the employee on the ship and the employee incurs no expense for meals, the standard meal rate deduction would still apply. That would be true for truck drivers as well who bring their own food with them from home while on the road. They are allowed the standard meal deduction regardless of whether they actually incurred meal expenses.

[Gretel]

Are you serious Bees?

You get all your meals paid by the employer and get the per diem rate? What is the authority for this? I thought Mr. Kapp is soon going to jail for this.

[Bees Knees]

Correction: The employee must incur some meal expenses to get the full allowance. The Rev. Proc. only requires that the employee incur some expense. It does not have to be equal to or exceed the per diem rate. It simply has to be something.

Rev. Proc. 2005-10, Section 4.03, “In lieu of using actual expenses in computing the amount allowable as a deduction for ordinary and necessary meal and incidental expenses paid or incurred for travel away from home, employees and self-employed individuals who pay or incur meal expenses may use an amount computed at the federal M&IE rate for the locality of travel for each calendar day (or partial day) the employee or self-employed individual is away from home. This amount will be deemed substantiated for purposes of paragraphs (b)(2) and (c) of section 1.274-5, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel for that day (or partial day) in accordance with those regulations.”

Section 7.06 “An employee who pays or incurs amounts for meal expenses and does not receive a per diem allowance for meal and incidental expenses may deduct an amount computed pursuant to section 4.03 of this revenue procedure only as an itemized deduction. This itemized deduction is subject to the appropriate limitation on meal and entertainment expenses provided in section 274(n) and the 2-percent floor on miscellaneous itemized deductions provided in section 67.”

[Bees Knees]

For days where the employee incurs NO meal expense (because the ship is providing the meals), then the following applies:

“Section 4.05 OPTIONAL METHOD FOR INCIDENTAL EXPENSES ONLY DEDUCTION. In lieu of using actual expenses in computing the amount allowable as a deduction for ordinary and necessary incidental expenses paid or incurred for travel away from home, employees and self-employed individuals who do not pay or incur meal expenses for a calendar day (or partial day) of travel away from home may use, for each calendar day (or partial day) the employee or self-employed individual is away from home, an amount computed at the rate of $3 per day for any CONUS or OCONUS locality of travel. This amount will be deemed substantiated for purposes of paragraphs (b)(2) and (c) of section 1.274-5, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel for that day (or partial day) in accordance with those regulations.”

[Gretel]

Thanks Bees for clarification. This is what I go by. I am still wondering though if you actually can take $3 for incidentials or just $1.50 because of the 50% rule.

[pmedders]

Bees Knees,

just wanted to confirm even though client is out no expenses, he can take the per diem rate for incidentals of $3.00 per day, and then if he is considered a transportation industry worker, he can take 70% of the $3.00 per day. Also, if he is on a ship working on an oil rig rather than moving people or goods, he would then not be considered a transportation worker and the rate would go down to 50%? Do I have it correct??

Thanks for your help!!

[Bees Knees]

You get 100% of the $3 per day deduction.

It helps sometimes to look things up, but I never realized this before. Rev. Proc. 2005-10, Section 6.05(4) says, “If an amount for incidental expenses is computed under section 4.05 of this revenue procedure, none of the amount so computed is subject to limitation under section 274(n) on the deductibility of food and beverage expenses.”

Section 274(n) is the 50% of meals limitation. So in other words, you get to deduct the full $3 per day for incidental expenses without having to apply the 50% limit (or 70% in the case of transportation workers).

[Unregistered]

just wanted to confirm even though client is out no expenses, he can take the per diem rate for incidentals of $3.00 per day

NO. If he has no expenses, there is no deduction. All of the standard rates are allowable as substantiation of the amount of an expense only. The expense must exist or there is nothing to substantiate.

Also, if he is on a ship working on an oil rig rather than moving people or goods, he would then not be considered a transportation worker and the rate would go down to 50%? Do I have it correct??

To use the transportation rate, the TP must be subject to DOT hours of service rules.

[Bees Knees]

NO. If he has no expenses, there is no deduction. All of the standard rates are allowable as substantiation of the amount of an expense only. The expense must exist or there is nothing to substantiate.

Well, that's not what the revenue ruling says. It says the $3 per day deduction applies when the taxpayer does not incur any meal expenses.

[Unregistered]

Well, that's not what the revenue ruling says. It says the $3 per day deduction applies when the taxpayer does not incur any meal expenses.

There is a difference between NO expense and NO MEAL expenses. If a TP has incidental expenses, the amount may be deemed substantiated at $3 per day, but the expenses must exist. Following your logic, everyone gets a standard $75 whether they have any expense of any kind. See page 6-5 of the TB Under documentary evidence.

[rosieea]

There is a difference between NO expense and NO MEAL expenses. If a TP has incidental expenses, the amount may be deemed substantiated at $3 per day, but the expenses must exist. Following your logic, everyone gets a standard $75 whether they have any expense of any kind. See page 6-5 of the TB Under documentary evidence.

Who DOESN'T have incidental expenses? Shaving cream, toothpaste, soap, Brasso for your shiney buttons, the list goes on.....

[Unregistered]

Who DOESN'T have incidental expenses? Shaving cream, toothpaste, soap, Brasso for your shiney buttons, the list goes on.....

A. You are the one that said no expenses.

B. I have had clients with all incidental expenses provided while away from home.

[Bees Knees]

No drinks from a pay vending machine? No midnight popcorn, potato chips?

Everyone has some incidental expenses, even if all meals are provided.