William K. Starr - Page 4




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               Lodging expenses that are incurred while traveling away from           
          home in the pursuit of business are generally deductible under              
          section 162(a).  Section 274(d), however, disallows a deduction             
          for lodging expenses under section 162 when a taxpayer fails to             
          substantiate (1) the amount of the expense, (2) the time and                
          place of travel, and (3) the business purpose of the expense.               
               Section 274(d) provides in part:                                       
                    SEC. 274(d).  SUBSTANTIATION REQUIRED.--No                        
               deduction or credit shall be allowed--                                 
                           (1) under section 162 or 212 for any                       
                    traveling expense (including meals and lodging                    
                    while away from home),                                            
                    *     *     *     *     *     *     *                             
               unless the taxpayer substantiates by adequate records                  
               or by sufficient evidence corroborating the taxpayer’s                 
               own statement (A) the amount of such expense or other                  
               item, (B) the time and place of the travel * * *,                      
               (C) the business purpose of the expense or other item                  
               * * *                                                                  
               The Secretary is vested with the authority to prescribe                
          rules waiving the substantiation requirements in circumstances              
          where it is impracticable for documentary evidence to be                    
          required.  See sec. 274(d).  Pursuant to this authority, Rev.               
          Proc. 94-77, 1994-2 C.B. 825, was issued for the purpose of:                
               providing rules under which the amount of ordinary and                 
               necessary business expenses of an employee for lodging,                
               meal, and/or incidental expenses incurred while                        
               traveling away from home will be deemed substantiated                  
               under sec. 1.274-5T of the temporary Income Tax                        
               Regulations when a payor (the employer, its agent, or a                
               third party) provides a per diem allowance under a                     
               reimbursement or other expense allowance arrangement to                





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