Final Regs Govern Deductibility of State Legislators’ Deemed Living Expenses

The IRS and Treasury released final regulations Thursday on the availability of a special deduction for deemed living expenses of state legislators (TD 9481). The final regulations adopt, with amendments, proposed regulations that were issued in 2008 (REG-119518-07).

Under IRC § 162(h), a state legislator who lives more than 50 miles from his or her state capitol building can deduct deemed living expenses on specified legislative days. To take advantage of this provision, the state legislator must elect to treat his or her residence within the legislative district as his or her tax home. Under this election, the legislator is then deemed to be away from home in pursuit of a trade or business on each “legislative day” and is deemed to have expended an amount for living expenses on those days.

The amount deemed to have been expended is the amount of the state’s per diem for its employees or the federal per diem amount for that state’s capital (Treas. Reg. § 1.162-24(a)(2)).

The regulations define “legislative day” to mean any day the legislature is actually in session, any day the legislature is not in session for a period of no longer than four consecutive days, any day the legislator’s attendance is formally recorded at a legislative committee meeting, or any day the legislator’s attendance is formally recorded at a pro forma session of the legislature (that is, a session that only a limited number of members are expected to attend) (Treas. Reg. § 1.162-24(b)).

The regulations say that a person is a “state legislator” for purposes of these rules starting on the day he or she is sworn in and ending on the day his or her term in office ends (Treas. Reg. § 1.162-24(d)(1)).

In response to comments that some state legislative committees contain members who are not state legislators, the final regulations define a “legislative committee” to include groups with one or more legislators as members and that are charged with conducting business of the legislature (Treas. Reg. § 1.162-24(d)(4)).

Some commentators on the proposed regulations had expressed concern that by defining “in session” and “legislative day,” the regulations would pre-empt state law governing the conduct of legislative affairs. The preamble to the final regulations clarifies that the regulations define “in session” and “legislative day” only for purposes of IRC § 162(h) and do not pre-empt state law governing the operation of state legislatures.

The preamble to the final regulations clarifies that they govern only the treatment of deemed living expenses; they do not affect or limit the deduction for actual travel expenses under section 162(a).

The final regulations are effective for expenses paid or incurred, or deemed expended under section 162(h), in tax years beginning after April 8, 2010.