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Back | October 12, 2011

IRS Keeps "High-Low" Method, Sets Rates for Business Travel


Reversing course, the IRS has announced it will not discontinue use of the “high-low” method for substantiating travel expenses. The agency has issued the simplified per diem rates that taxpayers can use to reimburse employees for expenses incurred during business travel after Sept. 30, 2011, retaining the high-low method. The simplified high-low per diems have increased for 2012 to $242 for high-cost localities and to $163 for all other localities, an increase from $233 and $160, respectively, for 2011.

Per Diem Rates

In lieu of substantiating actual travel-related meal and lodging costs, the IRS provides optional per diem allowances, which employers and employees are deemed to have substantiated by adequate records or other sufficient evidence. The per diem amounts also satisfy the requirement that employees provide an adequate accounting to the employer of meal and lodging expenses.

Comment: Generally, per diem amounts approved by the IRS track the federal per diem rates, which are published by the General Services Administration (GSA) for travel within the continental United States (CONUS) and by the Department of Defense for travel outside the CONUS.


In Rev. Proc. 2011–47, the IRS provides rules for using a per diem rate to substantiate the amount of an employee’s expenses for lodging, meal and incidental expenses, or for meal and incidental expenses only, that a payor reimburses. Going forward, the IRS will not revise the revenue procedure annually. Beginning with the rates for 2011-2012, the IRS will publish an annual notice providing the special per diem rates and the list of high–cost localities.


The IRS clarified that partners and volunteers who receive reimbursements from payors may use the methods in Rev. Proc. 2011-47 to substantiate their expenses. Additionally, the IRS explained that taxpayers may use the high–low substantiation method in lieu of the meal and incidental only per diem method in Rev. Proc. 2011-47 for travel within the CONUS.

High–Low Method

In July 2011, the IRS announced it intended to discontinue the high-low method. The IRS reported that it subsequently received a number of requests to retain the high-low method. Rev. Proc. 2011-47 continues to authorize the high-low method.

The IRS-approved per diem rate for high-cost areas is $242 ($177 for lodging and $65 for meals and incidental expenses). The IRS-approved per diem rate for all other areas is $163 ($111 for lodging and $52 for meals and incidental expenses). The revised rates apply to per diem allowances paid for travel after Sept. 30, 2011.

Planning Note: No localities have been added to the list of high-cost localities. However, the following localities are no longer classified as high-cost localities: Phoenix/Scottsdale, Ariz.; South Lake Tahoe, Calif.; Silverthorne/Breckenridge, Colo.; Riverhead/Ronkonkoma/Melville, N.Y.; and Stowe, Vt. The IRS also changed the portion of the year for which Chicago and Yosemite National Park are treated as high-cost localities.

Transition Relief

A payor must continue to use the same method (per diem or high–low) for an employee as the payor used during the first nine months of 2011 for travel in the last three months of 2011. A payor may use either the rates and high-cost localities in effect for the first nine months of 2011 or the updated rates and high–cost localities in effect for the last three months of 2011 if the payor uses the same rates and localities consistently for all employees reimbursed under the high-low method.

Transportation Industry Per Diem

Taxpayers that used the federal mean and incidental expense rates or the special transportation industry rates during the first nine months of 2011 for an individual cannot change to the other method for the individual until after Jan. 1, 2012. After Sept. 30, 2011, taxpayers in the transportation industry paying a per diem only for meals and incidental expenses may treat $59 as the meals and incidental expense rate for all localities within the CONUS and $65 as the meals and incidental expense rate for all localities outside the CONUS.