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written substantiation as to the employees’ actual use of the per
diem allowances.
United’s computerized system allowed it to record accurately
the employees’ duty assignments. United used these records to
calculate each employee’s per diem allowance. United included
its payment of an employee’s per diem allowance in his or her
salary check and listed the amount of the per diem allowance
included in the check on the corresponding check stub. United
issued to each employee a monthly report of the per diem
allowances which it had paid to him or her.
On its 1985, 1986, and 1987 Federal income tax returns,
petitioner claimed under section 162(a)(2) that it could deduct
the per diem allowances as employee travel expenses. For 1985,
United paid the employees per diem allowances totaling
$35,532,698 for overnight trips and $1,867,757 for day trips.
For 1986, United paid the employees per diem allowances totaling
$53,867,516 for overnight trips and $2,635,763 for day trips.
For 1987, United paid the employees per diem allowances totaling
$59,777,494 for overnight trips and $2,918,385 for day trips. As
to 1987, petitioner took into account section 274(n), as amended
in 1986, and deducted only 80 percent of the per diem allowances
paid during 1987. For financial accounting purposes, petitioner
also reported its payment of the per diem allowances as a travel
expense.
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