Rev. Rul. 77-323

Advice has been requested whether, under the circumstances described below, allowances and reimbursements paid to a Member of the House of Representatives are includible in gross income under section 61 of the Internal Revenue Code of 1954.

Under the Regulations and Accounting Procedures for Allowances and Expenses of Committees, Members and Employees of the United States House of Representatives, effective January 3, 1977, allowances and reimbursements under specific items are made available to each Member for use in the discharge of official and representational duties.

The specific items and the manner of payment are as follows:

1. Clerk Hire Allowance: A maximum of $255,144 a year is allowed to each Member to hire clerks, plus additional amounts to hire Lyndon Baines Johnson congressional interns. Payment is made by the Clerk of the House of Representatives directly to the employees upon a monthly certification by each Member that includes, among other things, a statement as to the official duties performed.

2. Office Equipment: All electrical and mechanical equipment used by a Member is purchased and owned by the House. The value of such equipment may not exceed $5,500. To obtain new equipment, a Member must make a request to the Clerk of the House who will furnish the items. Provisions also exist for leasing equipment by the House on behalf of a Member.

3. Office Supplies Allowances: Each Member is allowed up to $6,500 per regular session for stationery and other supplies for official purposes. The supplies are obtained from the House Office Supply Service.

4. Telegraph and Telephone Allowance: Charges for official long distance telephone calls, telegrams, mailgrams, cablegrams, and radiograms made or sent by or on behalf of each Member, within certain prescribed limits, will be paid by the Clerk of the House from a contingent fund, which is the portion of the House appropriation set aside to pay certain costs of the administrative functions of the House. However, if the Member has elected to utilize Wide Area Telecommunications Service (WATS) or similar service in the office in the Capitol or House Office Building, the amount allowed is reduced by one-half.

5. District Office Rental Allowance: Each Member is entitled to an allowance equivalent to 1500 square feet times the applicable rate per square foot charged to Federal agencies in the district established by regulations issued by the Administrator of General Services for the rental of suitable office space. Each Member is also authorized to lease a mobile office (or offices) under the provisions of this allowance.

6. Constituent Communications Allowance: Each Member is entitled to a constituent communications allowance of $5,000 per regular session of Congress, for use in the printing and production of newsletters, questionnaires or similar correspondence eligible to be mailed under the frank.

7. Computer Services Allowance: Each Member is authorized an allowance not to exceed $12,000 per year for the leasing of computer services in connection with official duties, provided that the Member elects to reduce the clerk hire allowance by a like amount.

8. Official Expenses Allowance: Each Member is entitled to an allowance in an amount not to exceed $2,000 per regular session of Congress for official expenses incurred within the United States and its territories or possessions. This allowance includes reimbursement for actual mileage for official travel by private automobile.

9. Travel by Members and Designated Employees Between Washington, D.C., and Home District Allowance: In connection with such travel, a Member is reimbursed for travel taken during each regular session. Reimbursement is for the actual cost of transportation if the travel is by common carrier. If the travel is by private automobile, there is a limit to the total reimbursement and there is a scheduled rate, not exceeding 15 cents per mile. In addition, each Member is allowed 20 cents a mile for one round trip to the Member's home district per regular session.

Before any amount is reimbursed or paid out under the above items the Clerk of the House must receive a receipt or certification from the Member that the expenditure was incurred in the conduct of duties as a Member of the House of Representatives. All expenditures are charged against the Member's allowances.

Section 61(a) of the Code provides that, except as otherwise provided by law, gross income means all income from whatever source derived.

In Commissioner v. Smith, 324 U.S. 177 (1945), 1945 C.B. 49, the Supreme Court of the United States held that section 22(a) of the Revenue Act of 1938 (predecessor of section 61 of the 1954 Code) is broad enough to include in taxable income any economic or financial benefit conferred on the employee as compensation, whatever the form or mode by which it is effected. In Commissioner v. Glenshaw Glass Company, 348 U.S. 426 (1955), 1955-1 C.B. 207, the Supreme Court held that all accessions to wealth clearly realized, and over which the taxpayers have complete dominion are includible in gross income.

Where there is no accession to wealth and the Member does not have complete dominion over allowances paid by the Clerk and charged to the Member, such allowances are not includible in the Member's gross income. Accordingly, allowances for items 1 through 8 (other than for travel) are not includible in the Member's gross income.

Allowances or reimbursements under item 8 and item 9, for certain ordinary and necessary business expenses, including official transportation that is not away from home, are governed by section 1.162-17(b) of the Income Tax Regulations. Section 1.162-17(b)(1) provides that an employee need not report on the tax return expenses for travel, transportation, entertainment, and similar purposes paid or incurred solely for the benefit of an employer if such employee is required to account and does account to the employer. The expenses involved are those that are charged directly or indirectly to the employer or for which the employee is paid through advances, reimbursements, or otherwise, provided the total amount is equal to such expenses. In such a case, when reporting, the taxpayer need only state that the total of amounts charged directly or indirectly to the employer and received from the employer as advances or reimbursements did not exceed the ordinary and necessary business expenses paid or incurred by the employee.

Section 1.162-17(b)(2) of the regulations provides that if the total of amounts charged directly or indirectly to the employer and received from the employer as advances, reimbursements, or otherwise, exceeds the ordinary and necessary business expenses paid or incurred by the employee and the employee is required to and does account to the employer for such expenses, the taxpayer must include such excess in income and so state on the return.

Because the Member is required to account and does account to the employer, by submission to the Clerk of the House of a receipt or certification that the expenditure was incurred in the conduct of duties as a Member of the House of Representatives, there is a proper accounting to the employer pursuant to section 1.162-17(b) of the regulations. See Rev. Rul. 74-433, 1974-2 C.B. 92. Accordingly, if the ordinary and necessary business expenses paid or incurred equal the reimbursement used in payment of the Member's travel while not away from home, the Member is not required to report any of the reimbursement in gross income. However, if the reimbursement exceeds the expenses paid or incurred the Member must include such excess in gross income.

With respect to allowances or reimbursements under items 8 and 9, for travel away from home, section 274(d) of the Code and section 1.274-5 of the regulations provide that no deduction shall be allowed under section 162 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, (B) the time and place of the travel, and (C) the business purpose of the expense.

However, with respect to any such reimbursement for per diem allowances for travel away from home, (item 9) Rev. Rul. 74-433 provides that per diem allowances in an amount that does not exceed the greater of $44 per day or the maximum per diem rate authorized by the Federal Government in the locality in which the travel is performed, shall be deemed as satisfying the substantiation requirements of the regulations under section 274 of the Code, provided (1) the employer reasonably limits payment of such travel expenses to those that are ordinary and necessary in the conduct of the trade or business and (2) the elements of time, place, and business purpose are substantiated as provided above.

With respect to mileage allowances, Rev. Rul. 74-433 provides that if a fixed mileage allowance not exceeding 15 cents a mile is used by an employer in payment of an employee's ordinary and necessary expenses of transportation while traveling away from home, and the elements of time, place, and business purpose of the travel are substantiated, then such an allowance shall be deemed as satisfying, with respect to such travel amounts, the substantiation requirements of the regulations under section 274 of the Code.

Accordingly, if a reimbursement for mileage not exceeding 15 cents a mile under items 8 and 9 or if a per diem reimbursement not exceeding $44 per day or the maximum amount authorized by the Federal Government to be paid in the locality in which the travel is performed is used in payment of the Member's ordinary and necessary travel expenses while away from home in the pursuit of the Member's trade or business and the elements of time, place, and business purpose of the travel, pursuant to section 274(d) of the Code, are substantiated, such a payment shall be deemed as satisfying, with respect to such travel amounts, the substantiation requirements and the adequate accounting requirements of the regulations under section 274. See Rev. Rul. 74-433.

If an allowance of 20 cents a mile under item 9 is used in payment for travel away from home, and the elements of the amount, time, place, and business purpose of the travel are substantiated, under section 274(d) of the Code and section 1.274-5 of the regulations, there is an adequate accounting. However, the Member must include in income the amount of the allowance in excess of the expenses actually paid or incurred.

In the event there is not an adequate accounting pursuant to the regulations under section 274 of the Code with respect to an allowance or a reimbursement used in payment of the Member's travel away from home expenses, the total of all amounts received from the employer during the taxable year as allowances or reimbursements therefor and all such travel expenses must be reported in accordance with the regulations under section 274. This would include, for example, reimbursements received for the actual cost of transportation if travel is by common carrier.