[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.67-1T]

[Page 111-113]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.67-1T  2-percent floor on miscellaneous itemized deductions 
(temporary).

    (a) Type of expenses subject to the floor--(1) In general. With 
respect to individuals, section 67 disallows deductions for 
miscellaneous itemized deductions (as defined in paragraph (b) of this 
section) in computing taxable income (i.e., so-called ``below-the-line'' 
deductions) to the extent that such otherwise allowable deductions do 
not exceed 2 percent of the individual's adjusted gross income (as 
defined in section 62 and the regulations thereunder). Examples of 
expenses that, if otherwise deductible, are subject to the 2-percent 
floor include but are not limited to--
    (i) Unreimbursed employee expenses, such as expenses for 
transportation, travel fares and lodging while away from home, business 
meals and entertainment, continuing education courses, subscriptions to 
professional journals, union or professional dues, professional 
uniforms, job hunting, and the business use of the employee's home.
    (ii) Expenses for the production or collection of income for which a 
deduction is otherwise allowable under section 212 (1) and (2), such as 
investment advisory fees, subscriptions to investment advisory 
publications, certain attorneys' fees, and the cost of safe deposit 
boxes,
    (iii) Expenses for the determination of any tax for which a 
deduction is otherwise allowable under section 212(3), such as tax 
counsel fees and appraisal fees, and
    (iv) Expenses for an activity for which a deduction is otherwise 
allowable under section 183.

See section 62 with respect to deductions that are allowable in 
computing adjusted gross income (i.e., so-called ``above-the-line'' 
deductions).
    (2) Other limitations. Except as otherwise provided in paragraph (d) 
of this section, to the extent that any limitation or restriction is 
placed on the amount of a miscellaneous itemized deduction, that 
limitation shall apply prior to the application of the 2-percent floor. 
For example, in the case of an expense for food or beverages, only 80 
percent of which is allowable as a deduction because of the limitations 
provided in section 274(n), the otherwise deductible 80 percent of the 
expense is treated as a miscellaneous itemized deduction and is subject 
to the 2-percent limitation of section 67.
    (b) Definition of miscellaneous itemized deductions. For purposes of 
this section, the term ``miscellaneous itemized deductions'' means the 
deductions allowable from adjusted gross income in determining taxable 
income, as defined in section 63, other than--
    (1) The standard deduction as defined in section 63(c),
    (2) Any deduction allowable for impairment-related work expenses as 
defined in section 67(d),
    (3) The deduction under section 72(b)(3) (relating to deductions if 
annuity payments cease before the investment is recovered),
    (4) The deductions allowable under section 151 for personal 
exemptions,

[[Page 112]]

    (5) The deduction under section 163 (relating to interest),
    (6) The deduction under section 164 (relating to taxes),
    (7) The deduction under section 165(a) for losses described in 
subsection (c)(3) or (d) of section 165,
    (8) The deduction under section 170 (relating to charitable 
contributions and gifts),
    (9) The deduction under section 171 (relating to deductions for 
amortizable bond premiums),
    (10) The deduction under section 213 (relating to medical and dental 
expenses),
    (11) The deduction under section 216 (relating to deductions in 
connection with cooperative housing corporations),
    (12) The deduction under section 217 (relating to moving expenses),
    (13) The deduction under section 691(c) (relating to the deduction 
for estate taxes in the case of income in respect of the decedent),
    (14) The deduction under 1341 (relating to the computation of tax if 
a taxpayer restores a substantial amount held under claim of right), and
    (15) Any deduction allowable in connection with personal property 
used in a short sale.
    (c) Allocation of expenses. If a taxpayer incurs expenses that 
relate to both a trade or business activity (within the meaning of 
section 162) and a production of income or tax preparation activity 
(within the meaning of section 212), the taxpayer shall allocate such 
expenses between the activities on a reasonable basis.
    (d) Members of Congress--(1) In general. With respect to the 
deduction for living expenses of Members of Congress referred to in 
section 162(a), the 2-percent floor described in section 67 and 
paragraph (a) of this section shall be applied to the deduction before 
the application of the $3,000 limitation on deductions for living 
expenses referred to in section 162(a). (For purposes of this paragraph 
(d), the term ``Member(s) of Congress'' includes any Delegate or 
Resident Commissioner.) The amount of miscellaneous itemized deductions 
of a Member of Congress that is disallowed pursuant to section 67 and 
paragraph (a) of this section shall be allocated between deductions for 
living expenses (within the meaning of section 162(a)) and other 
miscellaneous itemized deductions. The amount of deductions for living 
expenses of a Member of Congress that is disallowed pursuant to section 
67 and paragraph (a) of this section is determined by multiplying the 
aggregate amount of such living expenses (determined without regard to 
the $3,000 limitation of section 162(a) but with regard to any other 
limitations) by a fraction, the numerator of which is the aggregate 
amount disallowed pursuant to section 67 and paragraph (a) of this 
section with respect to miscellaneous itemized deductions of the Member 
of Congress and the denominator of which is the amount of miscellaneous 
itemized deductions (including deductions for living expenses) of the 
Member of Congress (determined without regard to the $3,000 limitation 
of section 162(a) but without regard to any other limitations). The 
amount of deductions for miscellaneous itemized deductions (other than 
deductions for living expenses) of a Member of Congress that are 
disallowed pursuant to section 67 and paragraph (a) of this section is 
determined by multiplying the amount of miscellaneous itemized 
deductions (other than deductions for living expenses) of the Member of 
Congress (determined with regard to any limitations) by the fraction 
described in the preceding sentence.
    (2) Example. The provisions of this paragraph (d) may be illustrated 
by the following example:

    Example For 1987 A, a Member of Congress, has adjusted gross income 
of $100,000, and miscellaneous itemized deductions of $10,750 of which 
$3,750 is for meals, $3,000 is for other living expenses, and $4,000 is 
for other miscellaneous itemized deductions (none of which is subject to 
any percentage limitations other than the 2-percent floor of section 
67). The amount of A's business meal expenses that are disallowed under 
section 274(n) is $750 ($3,750x20%). The amount of A's miscellaneous 
itemized deductions that are disallowed under section 67 is $2,000 
($100,000x2%). The portion of the amount disallowed under section 67 
that is allocated to A's living expenses is $1,200. This portion is 
equal to the amount of A's deductions for living expenses allowable 
after the application of section 274(n) and before the application of 
section 67 ($6,000) multiplied by the

[[Page 113]]

ratio of A's total miscellaneous itemized deductions disallowed under 
section 67 to A's total miscellaneous itemized deductions, determined 
without regard to the $3,000 limitation of section 162(a) ($2,000/
$10,000). Thus, after application of section 274(n) and section 67, A's 
deduction for living expenses is $4,800 ($6,750-$750-$1,200). However, 
pursuant to section 162(a), A may deduct only $3,000 of such expenses. 
The amount of A's other miscellaneous itemized deductions that are 
disallowed under section 67 is $800 ($4,000x$2,000/$10,000). Thus, 
$3,200 ($4,000-$800) of A's miscellaneous itemized deductions (other 
than deductions for living expenses) are allowable after application of 
section 67. A's total allowable miscellaneous itemized deductions are 
$6,200 ($3,000+$3,200).

    (e) State legislators. See Sec. 1.62-1T(e)(4) with respect to rules 
regarding state legislator's expenses.

[T.D. 8189, 53 FR 9875, Mar. 28, 1988]