As a military reservist, I have my drill attendance logs and mileage but no hotel receipts for most nights -- can I still deduct my full travel costs for attending drills?

Plain-English summary

A married couple appealed Virginia income tax assessments spanning 2018 through 2020, covering both ordinary itemized deductions and a military reservist's travel-expense adjustment claimed on federal Form 2106. The husband, a colonel in the U.S. Marine Corps Reserves, wasn't reimbursed by the government for his travel to attend drills, and claimed those unreimbursed costs as an adjustment to income for all three years.

Normally, employee business expenses aren't deductible at all under current federal law (a 2017 law change suspended miscellaneous itemized deductions for these), but military reservists get a specific exception: IRC § 62(a)(2)(E) lets them deduct travel expenses for traveling more than 100 miles to their duty location, directly from gross income rather than as an itemized deduction, but capped at federal per diem rates for lodging, meals, and incidentals, plus mileage and tolls/parking.

Even with that reservist exception, federal law (IRC § 274(d)) still requires solid substantiation -- generally contemporaneous logs and receipts proving the amount, the time and place of travel, and the business purpose. There's one meaningful shortcut: meal and incidental expenses can be substantiated just by computing them at the federal per diem rate and proving the time, place, and business purpose for each travel day -- no itemized meal receipts required. That shortcut, however, explicitly does NOT extend to lodging.

The husband came prepared with real documentation for part of his claim: printouts from his official military drill-attendance records for 2018-2020, and mileage information from his home to the drill site. That was enough to substantiate his mileage deduction (computed at the standard mileage rate) and, combined with the per diem shortcut, his meal and incidental expense deductions for the days shown on his logs. But his lodging expenses were a different story -- he had only a single hotel receipt, covering two nights that happened to line up with his 2019 drill log, out of three years of travel. Every other night's lodging, plus any other expenses he claimed on Form 2106 beyond mileage and per diem meals, stayed disallowed for lack of proof -- and the ruling notes that even if he could have documented more, the reservist provision only allows deductions up to the federal per diem caps anyway, not whatever was actually spent.

The couple's ordinary itemized deductions fared similarly: some 2018 and 2020 items (mortgage interest, certain real estate taxes, some charitable contributions) were eventually allowed once the couple produced receipts on appeal, but personal property taxes and the remaining charitable contributions stayed disallowed because no adequate proof -- like actual property tax bills to match up with a couple of checks payable to the local Treasurer -- was ever provided.

What this means for you

Military reservists claiming unreimbursed travel expenses to drills or duty

Keep your official drill/duty attendance records (they can substantiate the time, place, and business purpose of your travel) and a record of your mileage -- these two things alone let you claim mileage and, via the federal per diem shortcut, meal and incidental expenses without needing itemized receipts for every meal. But you still need actual hotel receipts to claim lodging -- the per diem substantiation shortcut for meals does not extend to lodging costs.

Anyone relying on federal per diem rates to substantiate a travel deduction

Remember the reservist travel deduction (and per diem substantiation generally) caps your deduction at the federal per diem rate, not your actual spending -- so even well-documented higher costs wouldn't be fully deductible beyond that cap.

Taxpayers submitting partial documentation on appeal after an audit disallowance

It can work -- this couple got some 2018 and 2020 itemized deductions restored by submitting receipts with their appeal that they hadn't provided during the audit. But partial proof only unlocks the specific items it actually supports; unmatched checks (like the property tax checks here, submitted without the corresponding tax bills) aren't enough on their own.

Common questions

Q: Do I need itemized meal receipts to deduct my reservist travel meal expenses?
A: No -- meal and incidental expenses can be substantiated simply by computing them at the federal per diem rate, as long as you can independently prove the time, place, and business purpose of the travel (for example, with official drill attendance logs).

Q: Does that same per diem shortcut work for hotel/lodging costs?
A: No -- the substantiation exception for meals and incidentals specifically does not apply to lodging. You generally need actual receipts to support a lodging deduction.

Q: Is the reservist travel deduction limited to what I actually spent, or to a set per diem rate?
A: It's capped at the federal per diem rate for lodging, meals, and incidentals (plus the standard mileage rate and parking/tolls) -- not your actual expenses, even if your actual costs were higher and you could prove them.

Citations and references

• Va. Code § 58.1-301 (Virginia conformity to the IRC)
• Va. Code § 58.1-219 (Department's authority to adjust FAGI/itemized deductions inconsistent with the IRC)
• Va. Code § 58.1-322.03(1) (Virginia itemized deduction conformity)
• IRC § 62(a)(2)(E) (above-the-line deduction for military reservist travel over 100 miles, capped at federal per diem/mileage rates)
• IRC § 274(d) (substantiation required for amount, time/place, and business purpose of travel expenses)
• IRC § 67(g) (miscellaneous itemized deductions, including ordinary employee business expenses, suspended for 2018+)
• Rev. Proc. 2011-47, § 4.03 (per diem substantiation shortcut for meal/incidental expenses; doesn't cover lodging)
• Va. Code § 58.1-310 (Department's authority to require federal return support)
• Va. Code § 58.1-205 (assessments presumed correct; burden of proof on the taxpayer)
• P.D. 19-78 (7/29/2019) and P.D. 20-29 (3/4/2020) (property tax and charitable deductions require receipts or cancelled checks)

Subject

Deduction: Itemized - Employee Business Expenses - Military Administration: Audits - Taxpayer Records

Source

• Landing page: Virginia Laws, Rules & Decisions
• Ruling: P.D. 22-133

Original ruling text

August 31, 2022

Re: § 58.1-1821 Application: Individual Income Tax

Dear *:

This will reply to your letter in which you seek correction of the individual income tax assessments issued to * and *** (the “Taxpayers”) for the taxable years ended December 31, 2018 through 2020.

FACTS

The Taxpayers, a husband and wife, filed Virginia resident income tax returns for the 2018, 2019, and 2020 taxable years claiming itemized deductions and adjustments to income for employee business expenses reported on federal Form 2106. Under audit, the Department requested information to support the amounts deducted by the Taxpayers. After reviewing the information provided by the Taxpayers, the Department disallowed the itemized deductions for mortgage interest paid, real estate taxes, personal property taxes, and charitable contributions claimed in the 2018 taxable year, all itemized deductions claimed in the 2020 taxable year, and all of the employee business expenses reported on Form 2106 for the 2018 through 2020 taxable years. The Department adjusted the returns accordingly and issued assessments.

The Taxpayer subsequently submitted additional information which was reviewed by the auditor. This information resulted in adjustments to the itemized deductions allowed in the 2018 and 2020 taxable years. In particular, for the 2018 taxable year, the auditor allowed the deduction for mortgage interest paid, but continued to disallow the deductions for real estate taxes, personal property taxes, and charitable contributions. For the 2020 taxable year, the auditor allowed the deductions for real estate taxes and the portion of the mortgage interest that had not been claimed on the Taxpayers’ federal Schedule E, but continued to disallow the deductions for personal property taxes and charitable contributions. The assessments were adjusted and the Taxpayers filed an appeal contending the information provided was sufficient to support the expenses claimed.

DETERMINATION

Conformity

Virginia Code § 58.1-301 provides, with certain exceptions, that terminology and references used in Title 58.1 of the Code of Virginia will have the same meaning as provided in the Internal Revenue Code (IRC) unless a different meaning is clearly required. Conformity does not extend to terms, concepts, or principles not specifically provided in the Code of Virginia . For individual income tax purposes, Virginia “conforms” to federal law, in that it starts the computation of Virginia taxable income with federal adjusted gross income (FAGI). Income properly included in the FAGI of a Virginia resident is subject to taxation by Virginia, unless it is specifically exempt as a Virginia modification pursuant to Chapter 3 of Title 58.1 of the Code of Virginia .

As a general rule, the Department relies on the accuracy of information and computations reflected on the federal income tax return when reviewing Virginia individual income tax returns. If the information provided on the federal return looks reasonable, there is generally no reason to look behind those computations. The Department, however, retains the authority to adjust the FAGI and itemized deductions where there is clear evidence that the amounts reported on the federal or Virginia income tax return are not consistent with the IRC. See Virginia Code § 58.1-219.

Itemized Deductions

Virginia Code § 58.1-322.03 1 allows an individual to deduct from their Virginia adjusted gross income certain amounts allowed for itemized deductions for federal income tax purposes. These deductions include those for real estate taxes, home mortgage interest, personal property taxes, medical expenses, and charitable contributions provided they are claimed in accordance with the IRC and its related regulations.

The auditor requested that the Taxpayers provide documentation supporting the itemized deductions claimed on their 2018 and 2020 returns. The requests clearly indicated the documentation required to substantiate each type of deduction. Substantiating payment of personal property taxes and charitable contributions through items such as a receipts or cancelled checks is required to claim the deductions. See Public Document (P.D.) 19-78 (7/29/2019) and P.D. 20-29 (3/4/2020). The Taxpayers did not provide the auditor with the requested documentation for real estate taxes for the 2018 taxable year or for the personal property taxes or charitable contributions.

With their appeal, however, the Taxpayers submitted additional documentation to support additional deductions. Receipts were included to support some charitable contributions for 2018 and 2020.

The Taxpayers also submitted documentation to verify a 2018 real estate tax paid on their personal residence. The deduction pertaining to an additional Form 1098 submitted for additional real estate tax, however, cannot be allowed as the tax was attributable to rental property and was claimed on their 2018 federal Schedule E.

In addition, the Taxpayers submitted two checks payable to their local Treasurer presumably to support personal property taxes paid. Because no property tax bills were submitted, however, the Department is unable to determine solely from the checks themselves whether the related expense qualified as an itemized deduction.

Form 2106 Adjustment to Income

Under IRC § 162, taxpayers are permitted to deduct all of the ordinary and necessary business expenses paid or incurred during the taxable year in carrying on any trade or business. Such expenses must be directly connected with or pertaining to the taxpayer’s trade or business. See Treas. Reg. § 1.162-1. Generally, such expenses incurred as an employee may not be deducted in determining adjusted gross income. See IRC § 62(a)(1). Further, beginning with the 2018 taxable year, such expenses may not be deducted as miscellaneous itemized deductions on a taxpayer’s federal Schedule A. See IRC § 67(g).

Notwithstanding the above, for the taxable years at issue, IRC § 62(a)(2)(E) provides a deduction from gross income for the travel expenses of military reservists who must travel more than 100 miles to their duty location. The deduction is limited to the federal per diem rate for lodging, meal, and incidental expenses and the standard mileage rate for vehicle expenses, plus parking and tolls.

Pursuant to IRC § 274(d), a deduction for travel and automobile expenses is disallowed 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. This generally requires that taxpayers produce contemporaneous written logs and receipts. Meal and incidental expenses, however, are treated as substantiated when the taxpayer computes the expense at the federal per diem rate and substantiates the time, place, and business purpose for the day of travel. See Rev. Proc. 2011-47, § 4.03, 2011-42 I.R.B. 522. The exception to the substantiation requirements is limited and does not apply to lodging.

The husband claimed an adjustment to federal gross income in 2018, 2019, and 2020 for employee business expenses reported on Form 2106. The husband has submitted documentation establishing that he was a colonel in the United States Marine Corps Reserves and was not eligible for reimbursement from the government for expenses incurred in attending drills during the taxable years at issue. He provided a printout from his personal page on the federal military website listing the dates of drills he attended during the 2018, 2019, and 2020 taxable years. He also provided evidence of the mileage from his home to the drill site and some hotel receipts from the 2019 taxable year. The Taxpayers indicated that they do not have any other receipts or other documentation to support the employee business expenses reported on Form 2106.

CONCLUSION

Taxpayers must maintain records sufficient to allow the IRS to determine their correct tax liability. See Treas. Reg. § 1.6001-1(a). Similarly, Virginia Code § 58.1-310 provides:

Whenever in the opinion of the Department it is necessary to examine the federal income returns or any copy thereof of any individual, estate, trust, partnership or corporation in order properly to audit such returns, the Department or the commissioner of the revenue shall have the right to require such taxpayer to provide such return or a copy thereof and all statements, inventories, and schedules in support thereof.

Under the provisions of Virginia Code § 58.1-205, in any proceeding relating to the interpretation of the tax laws of Virginia, an “assessment of a tax by the Department shall be deemed prima facie correct.” As such, the burden of proof is on the Taxpayers to show that the assessments were erroneous.

The drill logs and military records submitted by the husband substantiate the time, place, and business purpose for his travel for the dates shown on the logs during the taxable years at issue. The map showing the mileage from his home to his drill site substantiates the mileage travelled for purposes of computing a deduction based on the standard mileage rate. Based on this information, the federal per diem rate for meal and incidental expenses support a deduction for meal and incidental expenses incurred during his travel for drills.

The husband’s expenses claimed for lodging, however, have not been substantiated apart from one hotel receipt for two nights that coincide with dates on the 2019 drill log.

None of the other expenses claimed on the Form 2106 have been substantiated and, even if he had been able to substantiate the expenses, they would not be allowable under IRC § 62(a)(2)(E), which allows military reservists to deduct only travel expenses up to the federal per diem rates.

In addition, with the exception of the charitable contributions and real estate tax discussed above, the Taxpayers did not provide sufficient documentation to support the claimed itemized deductions for personal property taxes and charitable contributions.

The assessments for the 2018, 2019, and 2020 taxable years will be adjusted by the auditor to allow the expenses as discussed above and as set forth on the attached schedule. The Taxpayers will receive updated bills that will include accrued interest to date. The Taxpayers should remit the balance due within 30 days of the bill date to avoid the accrual of additional interest and possible collection actions.

The Code of Virginia sections and public documents cited are available on-line at www.tax.virginia.gov in the Laws, Rules & Decisions section of the Department’s web site. If you have any questions regarding this determination, you may contact * in the Office of Tax Policy, Appeals and Rulings, at ***.

Sincerely,

Craig M. Burns

Tax Commissioner

AR/4083.X

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