|
Bob Parrish C PA. P.C.
|
Accountable Plan - Employee Manual
|
|||||||||||||||||||||||||||||||
|
Telephone — Simply to Help —Helping You
|
DEDUCTING TRAVEL & ENTERTAINMENT EXPENSES ~ REIMBURSING UNDER AN ACCOUNTABLE PLAN OR PER DIEM ARRANGEMENT. TOPICS
COVERED: DEDUCTING TRAVEL EXPENSE - FOR THE SELF-EMPLOYED Will Our Travel Records Pass an IRS Audit? Attention self-employed! REQUIREMENTS FOR REIMBURSEMENT PLANS - IN GENERAL Is Your Employee Reimbursement Plan in Compliance with IRS Regulations? "Are we receiving proper travel records from our employees/ independent contractors?" Let's Avoid This! - How Unreimbursed Employee Business Expenses Are Deducted How The Reimbursement Rules Apply to Independent Contractors Who Report and Substantiate Expenses to Clients and Customers Proper Record keeping required for Reimbursed Employees Expenses to be Tax-free! Expenses of employee fully reimbursed: Breach of rules converts reimbursements into W-2 income! Accounting for separately from wage payments A Non-accountable Plan Occurs If "Improper Records" or "Keep-the-change" Exists!: Not substantiated Excess proceeds not returned Employee penalty Employer penalty The employee can still deduct No voluntary submission of the expense report to the employer is available So What Is an "Accountable Plan"? A. Has a business connection B. Requires substantiation to the employer C. Demands the employee return unsubstantiated expenses Consistency The effective date HOW TO MEET THE BUSINESS CONNECTION REQUIREMENT Only the Employee’s "Business Expenses" Can be paid! Vacation Expenses Were Nondeductible Entertainment Expenses (PLR 9615002) Per Diem must Also Be Business Related Employer cannot reduce employee's salary for deductible expenses Can an employer reduce the commissions owing to his employee by a mileage allowance arrangement? HOW TO PROPERLY SUBSTANTIATE TO THE EMPLOYER(CLIENT/CUSTOMER) Proper Record keeping For Travel, Meals, Lodging, Entertainment, Gifts, Auto Expenses, Home Computers, Cellular Phones, Etc. 1. A recap sheet of the expenses 2. Properly filled in 3. With receipts 4. Timely Proper Record keeping For Other Reimbursed Expenses Use of Corporate Credit Card or Direct Billing Charging on employers/clients credit card Income is created if the direct billing expenses are not supported by adequate accounting Credit cards issued to employee not income as proper rules followed Trouble when independent contractor charges to client/customer credit card or direct billing Employer Reimbursing to a "Related Party" Employee Expense Report Should Be Verified by Independent Party "Approved By" after submission necessary #1: THE EXPENSE REPORT Hard Copy Report Computer Record O.K. #2: HOW TO PROPERLY COMPLETE THE EXPENSE REPORT 3-8 Separate Expenses 3-8 Travel Expenses -Items Which Must Be Entered on Expense Report before Reimbursing: 3-8 Exception to accumulating the actual expense amount - the "per diem" rule. 3-9 No accounting to employer makes per diem (1) income and (2) not deductible on Form 2106 [B.J. Baugh, 2/96; TC Memo 1996-70] 3-9 Entertainment Expenses - Items that must Be Entered on Expense Report before Reimbursing: 3-9 Items that must be substantiated when the entertainment directly precedes or follows a substantial business discussion 3-9 Quiet Business Meal Expenses - Items that must Be Entered on Expense Report before Reimbursing: 3-10 Business-type Gifts - Items Which must Be Entered on Expense Report before Reimbursing 3-10 Automobile Expenses, Home Computers, Cellular Phones - Items which must Be Substantiated Before Reimbursing Listed Property Expenses 3-10 Exception to Writing Out Business Purpose If it is self-evident Aggregating Automobile Business Use How to record properly in the auto log! #3: PROPERLY ACCUMULATING RECEIPTS FOR THE EXPENSE REPORT Documentary evidence - IRS raises $25 receipt requirement to $75! Documentary evidence Receipts are still required for all lodging expense, regardless of amount When receipts are not needed: Relief! New! Federal employees don't need to submit receipts with expense vouchers: New! Copies of E-Mail and Fax qualify as receipts for "ticket less travel" New -"Ticket less travel!" IRS allows airline electronic ticket statements to substantiate business travel expenses (Text of Air Transport Association Letter Ruling, 3/97; 97FED &46,334 ) A hotel receipt A restaurant receipt A canceled check establishes cost but not business purpose Payment by a bank credit card #4: THE EXPENSE REPORT MUST BE FILLED IN TIMELY Expense Report Must be Completed Within a "Reasonable Period of Time" First action by employee: the "fixed date method" First action by employer/payer: the "periodic statement method" The Penalty - Once the "Reasonable Time" Passes, It's Income! THE ALTERNATIVE RECORDKEEPING OPTION What Is Meant by "Other Sufficient Evidence Corroborating the Taxpayer's Own Statement?" 1. Other sufficient evidence 2. Other corroborative evidence Substantiation in exceptional circumstances Sampling May Be Used Under Certain Circumstances Example - Auto log filled in for only 3 months Example - Auto log filled in one week a month CPA's sampling method disallowed. WHY? (Bill R. Thomas, TC Memo 1996-403) Loss of Records Beyond the Taxpayer's Control THE ACCOUNTABLE PLAN MUST REQUIRE THE RETURN OF UNSPENT ALLOWANCES No "Keep-the-change" Reimbursement Plans Allowed "Keep the change" air miles make reimbursement plans nonaccountable (PLR 9547001) Conversion of frequent flyer miles constituted gross income to employee (P.J. Charley, CA-9, 96-2 USTC &50,399) Advances The allowance must be reasonably calculated Advances must be paid within 30 Days 50% Of Meal and Entertainment Expenses Not Deductible ('274(n)) Including tips and tax But not cab fare For 1999! 55% of business meals deductible for transportation employees Depreciation Deduction Limitations for Autos in 1999 (Rev. Proc. 99-14) What does Congress call a "luxury" automobile? What automobiles are included? Electric cars included, but allowable annual auto depreciation tripled: What is the limitation on the annual depreciation? The Standard Mileage Rate: Two Rates For 1999! The Standard Mileage Rules Who may use the standard mileage method? What about leased cars? The 1999 Deemed Depreciation Per Business Mile Deducted - .12 Inclusion Amount - in General. Inclusion amount - calculation. 1999 LEASED AUTO - GROSS INCOME INCLUSION AMOUNT 1999 LEASED ELECTRIC AUTO - GROSS INCOME INCLUSION AMOUNT PER DIEM ARRANGEMENTS - BACKGROUND Four Available Per Diem Employee Reimbursement Options Option 1. Reimbursement of automobile mileage at $.325 ($.31 after 3/31) per mile (or less) Option 2. Reimbursement of meals and lodging at the federal per diem rate (or less) which vary from $80 to $281, depending on the city of destination (see following example) . Option 3. Reimbursement of meals and lodging at a $115/$185 high/low amount, depending on the city of destination (see schedule), Option 4. Reimbursement of meals only at the federal M&IE per diem rate of $30/$34/$38/$42/$46 (or less), depending on the city of destination (see middle column of federal per diem rates). Two Available Per Diem Employee Expensing Election Option 1. Deducting automobile mileage at 325 ($.31 after 3/31) per mile or less Option 2. Meals only: Two Per Diem Expensing Options Available for the Self-Employed Option 1. Deducting automobile mileage at $. 325 ($.31 after 3/31) per mile or less Option 2. Meals only: REIMBURSING COMBINED LODGING, MEALS AND INCIDENTAL EXPENSES; THE "STANDARD" SYSTEM Reimbursing the Same (or Less) Amount as the Government Employee Gets! Per diem allowance In the Continental United States (CONUS)- $80 to $281 for 1999 Per diem rates now on the Internet. Outside the Continental United States Foreign travel COMBINED LODGING, MEALS AND INCIDENTAL EXPENSES;THE SIMPLIFIED "HIGH/LOW" SYSTEM FOR CONUS Reimbursement in Lieu of Federal Rate - Two Choices. General rule The $115/$185 Per Day Rule - For 1999. For 1998 Half of $34/$42 not deductible in CONUS MEALS AND INCIDENTAL EXPENSES ONLY (THE M&IE RATES) The (A) Actual for Lodging and (B) Per Diem for Meals ... Option! Reimbursement of meals only option Other expenses that can qualify for the standard meal allowance. So What Is the Federal M&IE Amount for 1999? $30/$34/$38/$42/$46! For 1998 Deduction of Meals Only Option - for Both the Employee and the Self-employed! Rules to use the meals-only deduction option Related to employer problem $38 Special Rate for Transportation Industry in 1999 For 1998 OTHER REQUIREMENTS WHEN USING PER DIEM The Requirements to Use the Per Diem Option "Adequate accounting" to the employer required Per diem cannot be more than the IRS-specified rates Must return any per diem not substantiated Travel for Departure and Return Days - e.g. Partial Days of Travel Per diem amount must be reduced when away part of work day NEW! Claim : of the standard meal allowance: Alternative - use any reasonable business practice 1999 $115/$185 HIGH-LOW METHOD: HIGH-COST LOCALITIES SAMPLE ACCOUNTABLE EXPENSE REIMBURSEMENT PLAN THEN KEEP RECORDS THAT SHOW DETAILS OF THE FOLLOWING ELEMENTS. SAMPLE BUSINESS EXPENSE REPORT SAMPLE AUTOMOBILE AND COMPUTER LOG DEDUCTING TRAVEL & ENTERTAINMENT EXPENSES; REIMBURSING UNDER AN ACCOUNTABLE PLAN OR PER DIEM ARRANGEMENT.
DEDUCTING TRAVEL EXPENSE - FOR THE SELF-EMPLOYED Will Our Travel Records Pass an IRS Audit? This is the chapter that explains how to properly substantiate such items as business travel, meals, entertainment, and automobile expenses. Additionally, if the business or self-employed reimburses employee business expenses, the rules the employees must follow are subject to the new "accountable plan rules, a sample plan which is at the end of this chapter. Warning: Taxpayers cannot deduct or be reimbursed for amounts that are approximated or estimated (Sec. 274(d)). For the self-employed taxpayer with no employees, only the proper substantiation chapters and two per diem expensing options are pertinent. REQUIREMENTS FOR REIMBURSEMENT PLANS - IN GENERAL Is Your Employee Reimbursement Plan in Compliance with IRS Regulations? "Are we receiving proper travel records from our employees/ independent contractors?" This is one of the most common question small businesses ask. And their concern is understandable! To ensure that existing travel reimbursement plans do not violate IRS rules, all employers must: (1) reexamine the design of their expense reimbursement or other travel allowance arrangements; (2) analyze reporting and withholding (if any) on all plan reimbursements; and (3) evaluate the effect upon employees of these reporting and withholding decisions. This chapter explains the current Internal Revenue Service rules in a simple format. Let's Avoid This! - How Unreimbursed Employee Business Expenses Are Deducted All unreimbursed employee business expenses (e.g., auto and travel expenses, telephone, and business publications paid by the employee but required as a condition of employment by the employer) may only be deducted as "miscellaneous itemized deductions", (therefore a "below-the-line" deduction) and then only to the extent that such business expenses, together with all other miscellaneous itemized deductions exceed two percent of adjusted gross income (AGI). Additionally, the 50% deduction limitation involving business meals and entertainment would apply at the employee level. Only reimbursed employee business expenses may, in essence, be claimed as an "above-the-line" deduction exempt from the two percent "haircut", by omitting them from the employee's W-2 wages. How The Reimbursement Rules Apply to Independent Contractors Who Report and Substantiate Expenses to Clients and Customers. If the independent contractor does NOT adequately accounting to the client/customer for the travel expenses, to the extent not so substantiated, the reimbursement must be included in the independent contractors income (Sec. 1.274-5T(h)). If the independent contractor does adequately account to the client/customer, the reimbursed expenses cannot be included in the independent contractors income (Sec. 1.274-5T(h)(2)). But, even if the independent contractor doesn't properly substantiate to the client or customer, is not it simply a wash as the independent contractor can deducted the travel expenses "above the line?" Tax planning: The independent contractor who buries the expenses in his or her fee is stuck with the 50% limitation of meals and entertainment expenses. Additionally, the client/customer must report the expenses as income on the Form 1099 sent to the independent contractor. Example: Some consultants charge a "flat fee" for airfare and travel expenses, e.g., $1,000 per trip. As will be shown in the next section, "flat fee" arrangements do not qualify as an accountable plan as the independent contractor has not provided proper substantiation to the client. Proper Record keeping required for Reimbursed Employees Expenses to be Tax-free! Only "properly accounted-for" reimbursed employee business expenses paid under a "qualified" reimbursement plan may be excluded from the employee’s W-2 wages; e.g., there is no W-2 reporting of advances or reimbursements under an "accountable plan" if the plan satisfies a new three-part definition (discussed later in this chapter). Expenses of employee fully reimbursed: The expenses or the reimbursements are not to be reported on the employee=s individual tax return if all of the following are true: (1) Employee fully accounts to the employer for the employee's work-related expenses, (2) Employee receives full reimbursement for the employee's expense, (3) Employer requires employee to return any excess reimbursement and employee did so, and (4) Box 13 of employee's W-2 shows no amount with a code L (Pub 463, p. 2). Comment: As a matter of fact, the employer CAN'T add "accountable plan" payments to the employee's W-2, even if they wish to do so, and if they mistakenly do, the employer must provide a corrected W-2 (Sec. 1.62-2(c)(4)). But, technical violations of the "accountable plan" rules can result in a tax increase both the employer and the employee didn't expect - and can be easily avoided with proper tax planning! Breach of rules converts reimbursements into W-2 income! If a reimbursement arrangement does not satisfy one or more of the accountable plan requirements, all amounts paid under the reimbursement plan are wages and subject to withholding and payment of employment taxes when paid (Sec. 1.62-2(c)(3)(i); Sec. 1.62-2(h)(2)(ii)). Additionally, to the extent an employer fails to maintain adequate accounting procedures he will thereby obligate his employees to substantiate separately their expense account information (Sec. 1.274-5T(f)(5)(iii)). Comment: It is clear that the IRS wants to place the auditing of employee expense reports on the back of the employer or client/customer and not the responsibility of the IRS auditor (an understandable desire as only .009 of all individual tax returns are being audited these days). Strangely, the penalty for employer non-compliance is placed principally on the back of the employee! Accounting for separately from wage payments is required of "accountable plan" advance payments and reimbursements paid by the employer/payer. Comment: If separate payments are not made, and if both wages and the reimbursement or other expense allowances are combined in a single payment, the reimbursement or other expense allowance must be identified by specifically identifying the amount of the reimbursement or other expense allowance (e.g. on the check stub) [Sec. 1.62-2(d)(1)]. A Non-accountable Plan Occurs If "Improper Records" o r "Keep-the-change" Exists!: 1. Not substantiated: A non-accountable plan exists if the employee is not required to substantiate expenses or if the employer/payer pays an amount to an employee regardless of whether the employee incurs, or is reasonably expected to incur, business expenses, OR 2. Excess proceeds not returned: A non-accountable plan exists if the employee is not required to (or actually does not) return the excess of substantiated expense amount (Sec. 1.62-2(b)). Employee penalty: All advances and reimbursements from a non-accountable plan must be included on the employees W-2 in Box 1 and 3 (taxable) - a terrible penalty for the employee to pay (Sec. 1.62-2(c)(5)). And the payment becomes income when paid to the employee, not after the longer "reasonable period of time", which is discussed later (Sec. 1.62-2(h)(2)(ii)). Employer penalty: In addition, the employer must timely withhold federal income tax (the 28% optional withholding method is available) and the advances and/or reimbursement are subject to FICA and FUTA - the only penalty placed on the employer for noncompliance. The employee can still deduct the substantiated amount on the "Employee Business Expense Form 2106" but only as a miscellaneous itemized deduction subject to the 2% AGI "haircut", and after limiting meals and entertainment to 50% (80% prior to 1993) of the substantiated amounts (Sec. 274(n); Sec. 1.62-2(C)(5)). No voluntary submission of the expense report to the employer is available: If an employer chooses not to provide an accountable plan, the employer must report the entire amounts paid as wages, or other compensation, on the employee's W-2 Form, even if an employee voluntarily substantiates the expenses and returns any excess amounts (Sec. 1.62-2(c)(3)(i)). In fact, the regulations do NOT require the employer to provide an accountable plan, even though the employee pays the majority of the penalty! Example: Lydia receives an automobile expense reimbursement from her employer at $.35 per mile. The company does not require Lydia to account for her mileage. Lydia's business mileage is 10,000 and her "actual" business-related auto expenses are $3,000. Lydia's AGI (before any "for AGI" deductions) is $101,500. Result: Lydia finds the $3,500 mileage allowance (10,000 x .35) in her W-2 income (which will be fully discussed later in this outline), increasing her AGI to $105,000. But now the $3,000 of automobile expenses are treated as a "below-the-line miscellaneous itemized deduction" because she was not required to adequately report the expenses to her employer. Therefore, because of the two percent "haircut", only $900 [$3,000 - ($105,000 X 2%)] of the $3,000 automobile expenses spent are actually deductible. The result is an additional net taxable income of $2,100 ($3,000 - $900) added to Lydia's $101,500 cash income in addition to the $500 excess reimbursement ($3,500 - $3,000). Lydia will not only have income tax to pay on the additional $2,600 but both her and her employer will have FICA (and FUTA for her employer) to pay on the $3,000 "phantom" income ($3,250 if Lydia had used the mileage per diem rate). So What Is an "Accountable Plan"?: An "accountable plan" for either advances or reimbursements to employees is one that meets three requirements (Sec. 62(c)). It: A. Has a business connection: The amounts paid for business expenses by an employee must be related to his or her performances of services as an employee; B. Requires substantiation to the employer: The employee must adequately substantiate to the employer all "business connected" expenses covered by the plan (meeting the substantiation requirement specifications at Sec. 162 and Sec. 274; i.e., substantiation of the time, place, amount, and business purpose of each expense item); and C. Demands the employee return unsubstantiated expenses: The arrangement must require employees to return to the employer all amount in excess of the substantiated expenses, and the employees actually must return such excess amounts. Consistency - Your Company Name: The method to be used by the employer/payer is made on an employee-by-employee basis. But, the employer/payer must be consistent in the method used for each employee during the calendar year. The payer may have more than one arrangement being used concurrently (Sec. 1.62-2(c)(1)). Example: At Patagonia, Inc., President John is reimbursed for "actual expenses"; middle-management is reimbursed "actual travel expenses" and $.325 per diem mileage for auto travel; and sales staff is reimbursed $113 or $180 per day under the "high/low" per diem method and $.25 per diem mileage for auto travel. As long as the company stays consistent on a person-by-person basis throughout the year, all the above reimbursement variations are allowed in the same company. The effective date on the accountable plan rules are for advances or reimbursements received after July 1, 1990 ( Sec. 1.62-2(m)). HOW TO MEET THE BUSINESS CONNECTION REQUIREMENT Only the Employee's "Business Expenses" Can be Paid! The amounts paid for business expenses by an employee must be in connection with their performance of services as an employee (Sec. 1.62-2(d)). Flunking the business connection test creates W-2 income. Example: Dr. Olsen arranges to attend a two-day dental convention at New York, New York Casino in Las Vegas and takes a $1,000 advance even though the anticipated lodging, meals and incidental expenses are estimated to be $125 per day ($250 total). Only $250 meets the employee services requirement and the remaining $750 is W-2 income. Vacation Expenses Were Nondeductible Entertainment Expenses (PLR 9615002) An exporter's expenditures that were incurred to fund "incentive vacation trips" provided to the exporter's foreign sales representatives and independent distributors who met their sales goals were determined by the Service to be nondeductible entertainment expenses. Since the vacation trips were not treated as part of the foreign sales representatives' compensation and likewise were not part of the compensation for the independent distributors' services, the vacation trips were not "directly related to the exporter's active trade or business." Code Sections 274(e)(2) and 274(e)(9) that allowed for the deduction of entertainment expenses directly related to the taxpayer's trade or business did not apply. Per Diem must Also Be Business Related If the employer arranges to pay an amount to an employee regardless of whether the employee incurs business expenses, all amounts are deemed paid under a nonaccountable plan (i.e., it's W-2 income) [Sec. 1.62-2(d)(3)(i)]. Example: Civil Engineering (PE) pays its engineers $200 a day. On those days that an engineer travels away from home on business for PE, PE designates $50 of the $200 as paid to reimburse the engineer's travel expenses. Because PE would pay an engineer $200 a day regardless of whether the engineer has traveling away from home, the arrangement does not satisfy the business connection reimbursement requirement. Thus, no part of the $50 PE designated as a reimbursement is treated as paid under an accountable plan. Rather, all payments under the arrangement are treated as paid under a nonaccountable plan. PE must report the entire $200 as wages or other compensation on the employees' Forms W-2 and must withhold and pay employment taxes on the entire $200 when paid (Reg. 1.62-2(j), Example 1). Employer cannot reduce employee's salary for deductible expenses: An insurance company previously paid gross wages to their district manager (DM's) employees from which the DM's were required to pay their local operating expenses. After passage of these "accountable plan" rules, and to relieve the DM's from the 2% and 3% haircuts, the insurance company allowed their DM's to reduce their salary up to 40% and instead pay the DM's expenses that satisfied the business connection and substantiation requirements (Reg. Sec. 1.62-2(d)(1) & (e)(2)). If the DM's expenses were less than anticipated, the DM forfeited this amount. No, said IRS: The IRS says the plan fails to meet the business connection requirement! Additionally, the IRS reasons that when a DM elects to forgo future compensation under this reimbursement arrangement in consideration for the insurance companies agreement to reimburse business expenses up to an equivalent amount, the DM is making an anticipatory assignment of future income (which must be added back as W-2 wages)! The IRS states that an employer may not recharacterize a portion of an employee's salary as being paid under a reimbursement arrangement or other expense allowance arrangement. According to the IRS, in order to have an accountable plan, Sec. 62(c) and the regulations thereunder, contemplate that the reimbursement or other expense allowance arrangement should be in addition to salary (not a substitute for salary) [PLR 9325023]. Comment: We can hardly wait for this to be litigated! Can an employer reduce the commissions owing to his employee by a mileage allowance arrangement? The taxpayer employed messengers. They were paid a 40% commission. The employer treated compensation first as minimum wage and any balance was considered reimbursement for the standard mileage rate not to exceed the government allowance. The reimbursement per mile varied depending on the money the employer owed the driver for the pay period. The IRS ruled that the messenger service's arrangement wasn't an accountable plan but rather an abusive arrangement to recharacterize compensation as reimbursements (PLR 9504002). HOW TO PROPERLY SUBSTANTIATE TO THE EMPLOYER(CLIENT/CUSTOMER) Proper Record keeping For Travel, Meals, Lodging, Entertainment, Gifts, Auto Expenses, Home Computers, Cellular Phones, Etc. The adequate record requirement is met if the employee/payee timely delivers to the employer/payer: 1. A recap sheet of the expenses: Some type of accounting record is required, such as an "account book, diary, log, statement of expense, trip sheet, or similar record"; on which 2. Properly filled in: "each element" of an expenditure or use is recorded; together with supporting 3. With receipts: "documentary evidence" (such as canceled checks, bills or receipts for $75 or higher travel expenses), and the information is 4. Timely: "recorded at or near the time of the expenditure or use" (Sec. 1.62-2(e); Sec. 1.274-5T(c)(2)(i)). Proper Record keeping For Other Reimbursed Expenses Though not as tedious, for other employee/payee business expense items (e.g., business periodicals and office supplies), the expense documentation must show enough information to identify expense and conclude it relates to the reimburser's business (Sec. 1.62-2T(e)(3)). It is not sufficient to use broad categories (such as "travel") or vague terms (such as "miscellaneous business expenses") [Sec. 1.162-17(b)]. Use of Corporate Credit Card or Direct Billing Charging on employers/clients credit card does NOT relieve the employee/payee of any of the substantiation requirements (Sec. 1.62-2(d)(1); Sec. 1.274-5T(f)(4)) and is treated the same as if the employee/payee used his/her own cash (until, of course, calculating the "cash due employee"). Comment: Under a discussion titled "duplicate information", the IRS unofficially, in Publication 463, section 5, states "You do not have to record amounts your employer pays directly for any ticket or other travel item. However, if you charge these items to your employer, thought a credit card or otherwise, you must keep a record of the amounts you spend." What a strange statement! Income is created if the direct billing expenses are not supported by adequate accounting. If the total amount charged to the employer/payer exceeds the amount supported by "adequate accounting," the excess must be included in the employees/payees income (Sec. 1.274-5T(f)(2)(ii)). Credit cards issued to employee not income as proper rules followed: Under the employer's reimbursement program, charge cards were provided to employees who were likely to incur business expenses and use of the cards for personal expenses was prohibited. The procedures provided reimbursements only for business expenses that were deductible under Code Sections 161 through 196. Employees were required to submit a detailed expense report within a reasonable period of time after incurring the expense, providing each element of the expenditure. The procedures required the employee to make an "adequate accounting" to the employer by submitting adequate records for the expenses (PLR 9706018). Trouble when independent contractor charges to client/customer credit card or direct billing. The term "reimbursements" means advances, allowances, or reimbursements received by an independent contractor under a reimbursement arrangement with his or her client or customer, and includes amounts charged directly or indirectly to the client or customer through credit card systems or otherwise (Sec. 1.274-5T(h)(1)). In other words, if the independent contractor does not include the direct billing in his or her adequate accounting records, the client/customer must include the reimbursement in the independent contractors income and, when applicable, include it on the proper IRS reporting forms (e.g., Form 1099). Comment: so who is stuck with the 50% non-deduction for meals and entertainment? If the independent contractor does NOT adequately accounting to the client/customer for the travel expenses, the Sec. 274(d) 50% non-deduction for meals and entertainment applies to the independent contractor. On the other hand, if the independent contractor DOES adequately accounting to the client/customer, the Sec. 274(d) 50% non-deduction applies to the client/customer and the independent contractor has a 100% deductible meal and entertainment expense deduction (Sec.274(e)(4)(B); Sec. 2.274-5T(h)(3)). Tax planning: Therefore, the independent contractor who buries the expenses in his or her fee is stuck with the 50% limitation of meals and entertainment expenses. On the other hand, if the independent contractor separates out the fee from the travel expenses and provides adequate accounting to the client/customer, the 50% limitation only applies to the client/customer. This requires the independent contractor to separate out the 50% deductible meals and entertainment from the 100% deductible meals and entertainment. Employer Reimbursing to a "Related Party" Employee An employee who is "related" to his or her employer (e.g., a more than 10% shareholder of a corporate employer or certain close relatives of an individual employer) may be asked by the IRS to again substantiate each expense report even though he or she has properly accounted to the employer (Sec. 274-5(e)(5)(ii); Sec. 1274-5T(f)(5)(ii)). Expense Report Should Be Verified by Independent Party "Approved By" after submission necessary: An employer/payer should require that an expense account be verified and approved by a reasonable person other than the person incurring such expenses. Accounting procedures will be considered inadequate to the extent that the employer/payer does not require an adequate accounting from his employees/payees or does not maintain such substantiation ("1.274-5T(f)(5)(ii)). #1: THE EXPENSE REPORT Hard Copy Report In order for the taxpayer to prove they have complied with the "substantiation by adequate records" requirement, the taxpayer "shall maintain an account book, diary, log, statement of expense, report sheets, or similar record." It is not necessary to record information on the previously mentioned accounting records "which duplicates information reflected on a receipt so long as the account book, etc. and receipt complement each other in an orderly manner." (Sec. 1.274-5T(c)(2)(i)). Comment: The IRS is saying that the employee or taxpayer can't simply accumulate receipts, store them in a shoebox, and think they have met the "adequate records" standards! Some types of recapitulation sheet for the receipts are required. Appendix: Attached to this chapter is a sample expense report successfully used in numerous IRS audits. Computer Record O.K. Generally, an adequate record must be written. However, a record of the business use of listed property, such as a computer or automobile, prepared in a computer memory device with the aid of a logging program will constitute an adequate record (Sec. 1.274-5T(c)(2)(i)(C)(2)). #2: HOW TO PROPERLY COMPLETE THE EXPENSE REPORT As discussed previously, the employee must record on the expense report "each element of an expenditure." Regulations Sec. 1.274-5T detail what is meant by each "element." Reviewed below are the proper record keeping entries for (1) travel expenses, (2) entertainment expenses, (3) quiet business meal expenses, (4) business-type gifts, and (5) automobile, cellular phones and home computer expenses. Separate Expenses Each separate payment usually is considered a separate expense. For example, if you entertain a customer or client at dinner and then go to the theater, the dinner expense and the cost of the theater tickets are two separate expenses. You must record them separately in your records (Pub. 463, p.23). Travel Expenses -Items Which Must Be Entered on Expense Report before Reimbursing: 1. Amount - The amount of each separate expenditure for traveling away from home, such as the cost of transportation or lodging, except that the daily cost of the traveler's own breakfast, lunch, and dinner and the expenditures incidental to such travel may be aggregated, if detailed in reasonable categories, such as for meals, for gasoline and oil, and for taxi fares. 2. Time - The dates of departure and return for each trip away from home, and number of days away from home spent on business. 3. Place - The destinations or locality of travel, described by name of city or town or other similar designation. 4. Business Purpose - The business reason for travel or nature of the business benefit derived or expected to be derived as a result of the travel. [Reg. '1.274-5T(b)(2)]. Exception to accumulating the actual expense amount - the "per diem" rule. Relief from the burden of meeting all the substantiation requirements is available to taxpayers who incur relatively low travel-related meal and lodging expenses. Since this per diem method of computation is optional, taxpayers may still choose to deduct the actual costs of their meals provided that they substantiate such costs (Rev. Proc. 97-59, IRB 1997-52,31, Sec. 1). Warning: When using the per diem option, taxpayers are not relieved of the need to establish the time, place and business purpose of the travel, or the amounts of other travel expenses. For example: No accounting to employer makes per diem (1) income and (2) not deductible on Form 2106 [B.J. Baugh, 2/96; TC Memo 1996-70]: A married couple who worked as radiation protection technicians could not exclude from income the per diem payments received from their employers because the couple did not, and was not required to, account to their employers for the expenses they incurred in order to receive the payments (i.e., a "nonaccountable plan". Entertainment Expenses - Items Which must Be Entered on Expense Report before Reimbursing: 1. Amount - The amount of each separate expenditure for entertainment, except that such incidental items as taxi fares or telephone calls may be aggregated on a daily basis. 2. Time - The date of entertainment. 3. Place - The name, if any, address or location, and designation of type of entertainment, such as dinner or theater, if such information is not apparent from the designation of the place. 4. Business Purpose - The business reason for the entertainment or nature of business benefit derived or expected to be derived as a result of the entertainment and the nature of any business discussion or activity. 5. Business Relationship - The occupation or other information relating to the person or persons entertained, including name, title, or other designation, sufficient to establish business relationship to the taxpayer. [Reg. Sec. 1.274-5T(b)(3)]. Items which must be substantiated when the entertainment directly precedes or follows a substantial business discussion: If a taxpayer claims a deduction for entertainment that directly precedes or follows a substantial and bona fide business discussion because such entertainment is associated with the active conduct of the taxpayer's trade or business (e.g., an attorney taking a client to the theater after a court appearance), the elements to be proved, in addition to the items discussed above are: 1. Time - The date and duration of the business discussion. 2. Place - The place of the business discussion. 3. Business Purpose - The nature of the business discussion, and business reason for the entertainment or nature of business benefit derived or expected to be derived as the result of the entertainment. 4. Business Relationship - Identification of those persons entertained who participated in the business discussion (Reg. Sec. 1.274-5T(b)(4)). Quiet Business Meal Expenses - Items Which must Be Entered on Expense Report before Reimbursing: 1. Amount - The amount of the expenditure for each separate qualified quiet business meal. 2. Time - The date of the business meal. 3. Place - The name, if any, address or location. 4. Business Purpose - The business reason for the quiet business meal or nature of business benefit derived or expected to be derived as a result of the meal and the nature of any business discussion or activity. A written explanation of business purpose is not required if the business purpose is evident from the business relationship to the taxpayer of the person entertained and other circumstances. 5. Business Relationship - The occupation or other information relating to the person or persons, including name, title, or other designation, sufficient to establish business relationship to the taxpayer. [Reg. Sec. 1.274-5T(b)(3)]. Business-type Gifts - Items Which must Be Entered on Expense Report before Reimbursing: 1. Amounts - The cost of the gift to the taxpayer. 2. Time - The date of the gift. 3. Description - The description of the gift. 4. Business Purpose - The business reason for the gift or nature of business benefit derived or expected to be derived as a result of the gift. 5. Business Relationship - The occupation or other information relating to the recipient of the gift, including name, title, or other designation, sufficient to establish business relationship to the taxpayer (Reg. Sec. 1.274-5T(b)(5)). Automobile Expenses, Home Computers, Cellular Phones - Items which must Be Substantiated Before Reimbursing Listed Property Expenses: 1. Amount: a. Expenditures - The amount of each separate expenditure with respect to an item of listed property, such as the cost of acquisition, the cost of capital improvements, lease payments, the cost of maintenance and repairs or other expenditures, or uses. b. Uses - The amount of each business-investment use (as defined in Reg. Sec. 1.280F-6T(d)(3)) based on the appropriate measure (e.g., mileage for automobiles, minutes of use of home computers and cellular phones) and the total use of the listed property for the taxable year. 2. Time - The date of each expenditure or use. 3. Business or Investment Purpose - The business purpose for each expenditure or use (Reg. Sec. 1.274-5T(b)(6)). Warning: The monthly cellular telephone bill will not, by itself, meet this proper substantiation rule as the bill does not provide evidence whether each expenditure is for business or personal use. Unless the taxpayer so indicates, the entire cellular telephone bill could be considered W-2 to the employee(s) and no business expense deduction would be allowed for the employee or independent contractor. Exception to Writing Out Business Purpose If it's self-evident. Where the business purpose is evident from the surrounding facts and circumstances, a written explanation of such business purpose will not be required. For example, in the case of a salesman calling on customers on an established sales route, a written explanation of the business purpose of such travel ordinarily will not be required (Sec. 1.274-5T(c)(2)(ii)(B)). Example - the route driver: A taxpayer who uses a truck for both business and personal purposes and whose only business use of a truck is to make deliveries to customers on an established route may satisfy the adequate record requirement by recording the total number [of] miles driven during the taxable year, the length of the delivery route once, and the date of each trip at or near the time of the trips. Alternatively, the taxpayer may establish the date of each trip with a receipt, record of delivery, or other documentary evidence (Sec. 1.274-5T(c)(2)(ii)(C)). Aggregating Automobile Business Use How to record properly in the auto log! Uses that may be considered part of a single use, for example, a round trip or uninterrupted business use, may be accounted for by a single record. For example, use of a truck to make deliveries at several different locations which begins and ends at the business premises and which may include a stop at the business premises in between two deliveries may be accounted for by a single record of miles driven. In addition, use of a passenger automobile by a salesman for a business trip away from home over a period of time may be accounted for by a single record of miles traveled. De minimis personal use (such as a stop for lunch on the way between two business stops) is not an interruption of business use ( Sec. 1.274-5T(c)(6)(i)(C)).
#3: PROPERLY ACCUMULATING RECEIPTS FOR THE EXPENSE REPORT
Documentary evidence - IRS raises $25 receipt requirement to $75!
Documentary evidence, such as receipts, paid bills, canceled checks, or similar sufficient evidence is required to support any expenditure for lodging while away from home, and generally for travel, entertainment, business-type gifts, automobile expenses, home computers, and cellular phones (e.g., '274(d) expenses) of $75 or more beginning October 1, 1995 and $25 or more prior to that date [IRS Notice 95-50; Reg. ' 1.274-5(c)(2)(iii)]. Documentary evidence is normally considered adequate to support an expenditure if it includes the amount, date, place, and essential character of the expenditure but may not alone show business purpose [Reg. ' 1.274-5(c)(2)(iii)]. Receipts are still required for all lodging expense, regardless of amount, unless the taxpayer is otherwise relying on the per diem rules to substantiate the lodging expense in question. It is the IRS=s position that the credit card charge records, by themselves, are not acceptable documentary evidence of lodging expenses.
When receipts are not needed: Documentary evidence is not needed if any of the following apply:
1. You have meals or lodging expenses while traveling away from home for which you account to your employer under an accountable plan and you use a per diem allowance method that includes meals and/or lodging, 2. Your expense, other than lodging, is less than $75, or 3. You have a transportation expense for which a receipt is not readily available (Pub. 463, p.22).
Relief! Given the effect of inflation, the original $25 amount set in 1962 would now exceed $125 (i.e., well above the new $75 threshold). Now if a taxpayer has no receipts or paid bills to support one of these non-lodging expenses deducted on a return or schedule, the amount, up to $75, would still be allowed.
Comment: But many employers still require receipts before reimbursing any employee expenses, let alone those expenses above the $25 limit!
Comment: The IRS has the authority to modify the substantiation requirements for an adequate accounting by an employee to an employer (e.g., submit an expense report without any receipts), but, with the below exception only for Federal employee, has not done so to date ('1.274-5T(f)(1)).
New! Federal employees don=t need to submit receipts with expense vouchers: Effective October 1, 1997, an employee of the executive and judicial branches, and certain employees of the legislative branch, of the federal government who is reimbursed travel, entertainment, gifts, or listed property (such as automobile and cellular phone expenses) only need to submit an account book diary, log, etc., alone, without submitting documentary evidence such as receipts. The federal government must conduct periodic audits of a representative sample of the expense vouchers submitted (Rev. Proc. 97-45).
New! Copies of E-Mail and Fax qualify as receipts for ticketless travel: When a travel agency delivers the airline itinerary and receipt document to a client=s employee by email or fax, the employee does not receive a paper ticket or paper receipt. A printed copy of the fax or e-mail, attached to the employees expense report is qualified documentary evidence, as the regulations do NOT require that the documentary evidence must consist of original documents (PLR 9805007).
New - ticketless travel! IRS allows airline electronic ticket statements to substantiate business travel expenses (Text of Air Transport Association Letter Ruling, 3/97; 97FED &46,334 ) The IRS has issued a Letter Ruling to the Air Transport Association of America (ATA) allowing it to use electronic ticket statements to substantiate business travel expenses. Electronic ticketing is a method used by the airlines and their agents to document the sale and use of transportation and services, without issuing a paper ticket. The ATA is the nation's largest airline trade organization and its members transport over 95% of all passenger and cargo traffic in the United States. The IRS said that, in order for airfares in the amount of $75 or more to qualify for a business deduction, they must be substantiated by documentary evidence. However, the regulations do not specify the precise form of that evidence. Moreover, the IRS concluded, the rules are sufficiently flexible to permit the use of statements issued in connection with electronic ticketing to establish the amount, date, place and essential business character of an expenditure. A hotel receipt is sufficient to support expenditures for business travel if it contains the name and location of the hotel, the date or dates taxpayer stayed there, and separate amounts for charges such as for lodging, meals, and telephone.
A restaurant receipt is sufficient to support an expenditure for a business meal if it contains the name and location of the restaurant, the date and amount of the expenditure, and an indication that a charge (if any) has been made for an item other than meals and beverages.
A canceled check establishes cost but not business purpose: AA canceled check together with a bill from the payee, ordinarily would establish the element of cost. In contrast, a canceled check drawn payable to a named payee would not by itself support a business expenditure without other evidence showing that the check was used for a certain business purpose@ ('1.274-5T(c)(2)(iii)(B)).
Payment by a bank credit card: Payment by a bank credit card must be deducted in the tax year made, regardless of when the credit card charges are actually paid [Rev. Rul. 78-38 (charitable); Rev. Rul. 78-39 (medical care)].
#4: THE EXPENSE REPORT MUST BE FILLED IN TIMELY
Expense Report Must be Completed Within a "Reasonable Period of Time"
Both the substantiation requirement and the returning of excess reimbursement to the employer/payer requirement must be met within "a reasonable period of time" after an expense is paid or incurred as that is when the taxpayer has full present knowledge of each element ('1.274-5T(c)(2)(A)). What constitutes a reasonable period of time? It depends on each taxpayer's facts and circumstances ('1-62-2T(g)(1)). However, a record of the elements of an expense or a business use has more value than a statement prepared later when generally there is a lack of accurate recall (Pub. 463, p.23). But, the IRS creates two "safe harbor" rules indicating what they think is reasonable:
First action by employee: the "fixed date method": The employee takes the first action by substantiating the expense within 60 days after it is incurred, and returning any unspent advances within 120 days after incurring the expense.
First action by employer/payer: the "periodic statement method": The employer takes the first action by requesting (at least quarterly) that the employee either (1) provide substantiation to offset the outstanding advance, or (2) return the spare change, within 120 days after the employer so requests (Reg. 1.62-2T(g)(2)).
The Penalty - Once the Reasonable Time Passes, It=s Income!
The unsubstantiated or unreturned amounts only become W-2 income ('1.62-2(c)(3)(ii)) under an accountable plan after the lapsing of this (normally 120 day) "reasonable period of time" ('1.62-2(h)). A late filing of the expense report will not reverse this characterization.
Example - not timely substantiation: Seminars, Inc. provides a $500 advance to Dr. Bill for a trip away from home on Seminars, Inc. business. Dr. Bill incurs $500 in business expenses on the trip. Seminars, Inc. uses the periodic statement method safe harbor. At the end of the quarter during which the trip occurred, Seminars, Inc. sends a quarterly statement to Dr. Bill stating that $500 was advanced to Dr. Bill during the quarter and that no expenses were substantiated and no excess amounts returned. The statement advises Dr. Bill that he must substantiate any additional business expenses within 120 days of the date of the statement, and must return any unsubstantiated excess within the 120-day period. Dr. Bill fails to substantiate any expenses or to return the excess within the 120-day period. Seminars, Inc. treats the $500 as wages and withholds and pays employment taxes on the $500. After the 120-day period has expired, Dr. Bill substantiates the $500 in travel expenses. Seminars, Inc. properly reported and withheld and paid employment taxes on the $500 and no adjustments may be made. Dr. Bill must include the $500 in gross income and may deduct the $500 of expenses as a miscellaneous itemized deduction subject to the 2-percent floor ('1.62-2(j); Exp. 9).
THE ALTERNATIVE RECORDKEEPING OPTION
If a taxpayer fails to substantially comply with the previous adequate records requirement with respect to any element of an expenditure or use, the taxpayer MUST then establish such element by "other sufficient evidence" backed up with "other corroborative evidence".
What Is Meant by "Other Sufficient Evidence Corroborating the Taxpayer's Own Statement?"
1. Other sufficient evidence is the taxpayer's own statement, whether written or oral, containing specific information in detail as to such element and other corroborative evidence sufficient to establish such element (Reg. '1.274-5T(c)(3)(i)). 2. Other corroborative evidence must be direct evidence (a written statement or oral testimony of witness) if the element is the cost, amount, time, place, or date of an expenditure or use (Reg. '1.274-5T(c)(3)(i)).
Substantiation in exceptional circumstances: The substantiation requirements do not have to be met in those exceptional circumstances where it is simply impossible to meet these requirements and other "highly probative" evidence is available (Reg. '1.274-5T(c)(4)).
Sampling May Be Used Under Certain Circumstances.
If a taxpayer maintains an adequate record of part of the taxable year, he or she may possibly be permitted to use such partial record to substantiate the business/investment use of listed property for the entire year if he or she demonstrates that the period covered by the adequate record is representative of the use (Reg. '1.274-5T(c)(3)(ii)(A)). This sampling may be as small as 25% of the entire year.
Example - Auto log filled in for only 3 months: Leah, a sole proprietor, operates an interior decorating business out of her home. Leah uses an automobile for local business travel to visit the homes or offices of clients, to meet with suppliers and other subcontractors, and to pick up and deliver certain items to clients when feasible. There is no other business use of the automobile but Leah and other members of her family also use the automobile for personal purposes. Leah maintains adequate records for the first three months of 1998 that indicate that 75 percent of the use of the automobile was in Leah's business. Invoices from subcontractors and paid bills indicate that Leah's business continued at approximately the same rate for the remainder of 1998. If other circumstances do not change (e.g., Leah does not obtain a second car for exclusive use in her business), the determination that the business/investment use of the automobile for the taxable year is 75 percent is based on sufficient corroborative evidence (Reg. '1.274-5T(c)(3)(ii)(C)).
Example - Auto log filled in one week a month: The facts are the same as in the previous example, except that Leah maintains adequate records during the first week of every month, which indicate that 75 percent of the use of the automobile is in Leah's business. The invoices from Leah's business indicate that Leah's business continued at the same rate during the subsequent weeks of each month so that Leah's weekly records are representative of each month's business use of the automobile. Thus, the determination that the business/investment use of the automobile for the taxable year is 75 percent is based on sufficient corroborative evidence (Reg. '1.274-5T(c)(3)(ii)(C)).
CPA had his sampling method disallowed. WHY? (Bill R. Thomas, TC Memo 1996-403): A certified public accountant who operated an accounting practice and a business that sold companies was denied Schedule A deductions for vehicle expense and other business expenses. The taxpayer's daily calendar that did not indicate mileage or business purpose for any of his appointments was not sufficient to substantiate his vehicle expense deductions. Moreover, the taxpayer was not permitted to introduce a sampling of mileage from a prior year as an estimation of his current business use. The taxpayer also failed to substantiate with receipts or documentary evidence the deduction for other business expenses.
Loss of Records Beyond the Taxpayer's Control:
If the taxpayer's records are destroyed due to fire, flood, earthquake, or other casualty, the taxpayer may reconstruct the expenses using a reasonable method (Reg. '1.274-5T(c)(5)).
THE ACCOUNTABLE PLAN MUST REQUIRE THE RETURN OF UNSPENT ALLOWANCES
No Keep-the-change Reimbursement Plans Allowed.
Any reimbursement policy that provides the employee with the right to retain any amount in excess of the substantiated expenses covered under the policy is deemed a non-accountable plan (Rev. Proc. 97-59; Sec. 2.06).The accountable plan must require the return of unspent allowances within a reasonable period of time ('62(c); '1.62-2(f)).
Without this demand inserted in the employee=s policy manual, the employer=s reimbursement plan may be deemed a "non-accountable plan" (even if the employee actually returns the excess advances) and all the employee's reimbursements for the year would then be deemed W-2 salary and wages. It is interesting to note that Congress places most of the penalty for the employer=s noncompliance on the employee.
Note: As the burden of proof is always on the taxpayer, the employer SHOULD have written in the office policy manual, a sentence stating that the employee MUST return any unspent advances or allowances ('1.62-2(f)(1)). A sample reimbursement policy is attached to the end of this chapter.
Comment: For those companies without a written policy manual or up-to-date corporate minutes, the statement "EMPLOYEE MUST RETURN EXCESS PROCEEDS" on each travel reimbursement form should be sufficient notice.
Example - violating the return requirement. Diamond, LLC provides expense allowances to certain of its employees to cover business expenses under an arrangement that requires the employees to substantiate their expenses within a reasonable period of time and to return any excess amounts within a reasonable period of time. Each time an employee returns an excess amount to Diamond, LLC, however, Diamond, LLC pays the employee a bonus equal to the amount returned by the employee. The arrangement fails to satisfy the requirements of returning amounts in excess of expenses. Thus, Diamond, LLC must report the entire amount of the expense allowance payments as wages or other compensation and must withhold and pay employment taxes on the payments when paid ('1.62-2(j); Exp.8).
Keep the change air miles make reimbursement plans nonaccountable (PLR 9547001): Two of a company's plans for reimbursing employees for business expenses of automobile and air travel were found by the Service to be nonaccountable plans. Therefore, amounts reimbursed under those plans were not deductible from the employees' gross income in calculating adjusted gross income but were instead subject to the 2% floor on certain miscellaneous itemized deductions. A third plan, the non-supervisors automobile mileage reimbursement plan, qualified as an accountable plan. It required substantiation of the business use of privately owned vehicles, and the employees were reimbursed at the applicable cents-per-mile rate, thereby satisfying the return of excess requirement. On the other hand, a supervisors automobile mileage reimbursement plan did not qualify as an accountable plan because it did not require the submission of mileage records and did not meet the applicable substantiation requirements. It also did not require the return of amounts in excess of actual or deemed substantiated expenses. Finally, an air travel arrangement did not qualify as an accountable plan because it allowed employees to retain mileage and awards accumulated on business travel, which constituted amounts in excess of the substantiated expenses.
Comment: This PLR has NOT been withdrawn, although the IRS Commissioner has publicly stated that it will not be enforced and is not IRS policy. Right!
Conversion of frequent flyer miles constituted gross income to employee (P.J. Charley, CA-9, 96-2 USTC &50,399): Frequent flier miles earned during business travel that were converted into cash by the president of an industrial testing company constituted gross income to the president. The taxpayer received travel credits to his personal account when the company billed clients for first-class tickets but purchased coach-class tickets. He then used frequent flyer miles to upgrade the tickets to first-class tickets. The amounts credited to the taxpayer's account were taxable whether they were characterized as Again from the disposition of property@ or as additional compensation. The amounts were not a nontaxable gift because the exclusion from gross income for gifts does not include amounts transferred by an employer to, or for the benefit of, an employee. Moreover, since the company did not offer frequent flyer miles to customers in the ordinary course of its business, the travel credits could not be an excludable no-additional-cost service (i.e., under Code '132). However, the Tax Court erred in holding the taxpayer liable for the negligence penalty. The Court felt that there was nothing in the record that would have caused a reasonable person to conclude that the conversion of the frequent flyer miles into cash constituted taxable income. Affirming in part and reversing in part Dec. 49,430(M).
Advances
The allowance must be reasonably calculated to cover anticipated expenses AND paid within a reasonable time prior to the day the expenses were incurred ('1.62-2(f)(1)).
Advances must be paid within 30 Days: The IRS has established a "safe harbor" rule stating that advances may not be made more than 30 days prior to when an expense is paid or incurred (Reg. 1.62-2(g)(2)(i)).
Example: Computer Inc. provides President Del with an "advance" of $3,000 at a time when it is NOT anticipated that Del will incur travel or other expenses deductible in the trade or business of being an employee. This "advance" does NOT meet the business connection requirement and will not be treated as paid under an accountable plan.
Bifurcated example: Sandy receives a $1,000 advance for a 2-day business trip to New York City where she anticipates to spend $225 per day, but is staying an additional 4 days to personally see some Broadway plays. Only $450 of the $1,000 advance meets the "business connection" requirement, and therefore, the other $550 must be added to Sandy's W-2 income as a nonaccountable plan payment.
50% Of Meal and Entertainment Expenses Not Deductible ('274(n))
Deductions for any meals (food and beverages) and entertainment are limited to 50% of such allowable expenses even if they are incurred while traveling away from home ('274(n)).
Example: If a taxpayer spends $100 for business entertainment that normally would be fully deductible, only $50 would be allowed as a deduction.
Including tips and tax: Expenses for taxes and tips relating to a meal or entertainment activity are affected by the 50% limitation. Expenses such as cover charges for admission to a night club, the amount paid for a room which the taxpayer rents for a dinner or cocktail party, or the amount paid for parking at a sports arena in order to attend an entertainment event there, likewise must be included in the total expense before applying the 50% reduction.
But not cab fare: Transportation expenses (e.g. cab fare to the restaurant) are not affected by this provision, only meals and entertainment.
For 1999! 55% of business meals deductible for transportation employees: For tax years beginning after 1997, individuals may deduct a higher percentage of the cost of food and beverages while away from home during, or incident to, a period of duty subject to the hours-of-service limitations of the Department of Transportation. Individuals subject to these limitations include:
1. Certain air transportation employees such as pilots, crew, dispatchers, mechanics, and control tower operators pursuant to Federal Aviation Administration regulations; 2. Interstate truck operators and interstate bus drivers pursuant to Department of Transportation regulations; 3. Certain railroad employees, such as engineers, conductors, train crews, dispatchers, and control operations personnel pursuant to Federal Railroad Administration regulations; and 4. Certain merchant mariners pursuant to Coast Guard regulations.
The deductible percentage is 55% for 1998 and 1999, 60% for 2000 and 2001, 65% for 2002 and 2003, 70% for 2004 and 2005, 75% in 2006 and 2007, and 80% in 2008 and later years.
Depreciation Deduction Limitations for Autos in 1999 (Rev. Proc. 99-14).
Dollar limits are placed on the amount of annual depreciation claimed for "luxury" business autos ('280F).
What does Congress call a "luxury" automobile? For 1999, these depreciation caps come into play when a car's cost exceeds $15,500.00 (Rev. Proc. 99-14). The definition of a "luxury" auto was $15,600 in 1998, (Rev. Proc. 98-30), $15,700 in 1997 (Rev. Proc. 97-20), $15,350 in 1995 and 1996, $14,600 in 1994, $14,400 in 1993, $13,750 in 1992, $13,400 in 1991, and $13,100 prior to 1990.
What automobiles are included? Applicable automobiles include passenger cars weighing 6,000 g.v.w. (a.k.a.., pounds) or less, which are manufactured primarily for use on public streets, roads and highways. Therefore a light van or truck may also be included.
Comment: Rumor has it that the new $45,000 Land Rover=s g.v.w. is 6,001, allowing it to be depreciated over six years and electing the '179 expensing rules on the first $18,500!
Electric cars included, but allowable annual auto depreciation tripled: The MACRS limitations on vehicles that are listed property apply to all passenger automobiles. For clean-fuel vehicles, primarily propelled by electricity and built by an original equipment manufacturers, the luxury auto depreciation limitations are tripled, for vehicles placed in service after August 5, 1997 and before January 1, 2005. Additionally, when a vehicle is modified to permit the vehicle to be propelled by a clean-burning fuel, the limitations apply only to the cost of a vehicle not attributable to installed qualified clean-burning fuel property ('280F(a)(1)(C)).
The Standard Mileage Rules:
Who may use the standard mileage method? Only self-employed individual and employees may elect to use this standard mileage rate.
What about leased cars? Starting January 1, 1998, the standard mileage method is now available to a taxpayer's leased automobile (but only for the entire lease period, including renewals), although, generally it is smarter to deduct the business portion of lease payments under the actual cost method. For a lease starting on or before December 31, 1997, the entire lease period means the portion of the lease period (including renewals) remaining after that date. Lease expenses that are, in fact, disguised purchased payments are not deductible, but must be recovered through depreciation (see Rev. Proc. 98-63, sec. 5.06(2)).
Inclusion Amount - in General.
To prevent avoidance of the personal use and luxury car limitations that apply to owned cars, a parallel system of limitations has been put in place for leased cars. Under this system, a taxpayer who leases a luxury car for business or a taxpayer who drives any car for personal purposes may be required to include an additional amount within his or her gross income in order to offset the deduction for the rental expense. The inclusion amount, based on the cost of the car, applies generally to cars with a fair market value in excess of: And the vehicle=s fair The lease term market value on the first began in: day of the lease exceeded: 1999 $15,500 1998 $15,600 1997 $15,800 1995 or 1996 $15,500 1994 $14,800 1993 $14,300 (See Form 2106 Instructions, page 3; Rev. Proc. 99-14; Sec. 4.04(2)).
Inclusion amount - calculation. Reg. ' 1.280F-7T provides that if a taxpayer leases a passenger automobile, the taxpayer must include in gross income an inclusion amount determined for each taxable year during which the taxpayer leases the automobile. The inclusion amount for each taxable year during which the automobile is leased is determined as follows:
Calculation. For the appropriate range of fair market values and the table in Reg. ' 1.280F-7T, select the dollar amount from the column for the taxable year in which the automobile is used under the lease (but for the last taxable year during any lease that does not begin and end in the same taxable year, use the dollar amount for the preceding year).
1. Multiply the inclusion amount by a fraction equal to the number of days the car is leased during the year divided by 365.
2. Multiply the above product in (1) by the percentage of business and investment use of the car during the year.
PER DIEM ARRANGEMENTS -1999 UPDATE
PER DIEM ARRANGEMENTS - BACKGROUND
This section sets forth the 1999 per diem options available for (1) employee reimbursements and deductions and (2) self-employed deductions.
Any available per diem method is optional (it is not mandatory) for employees and self-employed individuals to use in computing the deductible costs of business lodging, meals and incidental expenses paid or incurred while traveling away from home, i.e., they may always use actual allowable expenses if they maintain adequate records (or other sufficient evidence) [Rev. Proc. 98-64; Sec.1].
Four Available Per Diem Employee Reimbursement Options:
To make life easier, a payer (the employer, its agents or a third party) may pay a per diem allowance in lieu of reimbursing actual expenses for lodging, meals and incidental expenses (called M&IE expenses) incurred or to be incurred by an employee for travel away from home. But the amount of the per diem allowance that can be paid to an employee is limited to four options:
Option 1. Reimbursement of automobile mileage at 32.54 (314 after 3/31) per mile (or less). Option 2. Reimbursement of meals and lodging at the federal per diem rate (or less) which vary from $80 to $281, depending on the city of destination (see following example) . Option 3. Reimbursement of meals and lodging at a $115/$185 high/low amount, depending on the city of destination (see schedule), Option 4. Reimbursement of meals only at the federal M&IE per diem rate of $30/$34/$38/$42/$46 (or less), depending on the city of destination (see middle column of federal per diem rates).
Note: There is no per diem for a lodging-only option (Rev. Proc. 98-64; IRB 1997-52, 31, Sec. 1).
Two Available Per Diem Employee Expensing Elections
Option 1. Deducting automobile mileage at 32.54 (314 after 3/31) per mile or less. Option 2. Meals only: As long as the employee is not reimbursed meals, the employee may deduct travel away from home meals on his or her personal return (e.g., Form 2106) at the federal M&IE per diem rate of $30/$34/$38/$42/$46 or less, depending on the city of destination (see middle column of federal per diem rates) (Rev. Proc. 98-64; Sec. 7.06). This amount is subject to the 50% (or 55%) disallowance of '274(n); e.g., only $15 of the $30 meal allowance is actually deductible for non-transporatation employees.
Two Per Diem Expensing Options Available for the Self-Employed:
Option 1. Deducting automobile mileage at 32.54 (314 after 3/31) per mile or less. Option 2. Meals only: As long as the self-employed is not reimbursed meals, the self-employed may deduct travel away from home meals on his or her personal return (e.g., Schedule C) at the federal M&IE per diem rate of $30/$34/$38/$42/$46 or less, depending on the city of destination (see middle column of federal per diem rates) (Rev. Proc. 98-64; Sec. 7.07). As with employees, this amount is subject to the 50% (or 55%) disallowance of '274(n); e.g., only $15 of the $30 meal allowance is actually deductible for the non-transportation self-employed.
Comment: In other words, the self-employed cannot use either the federal lodging and meals rate (e.g., $80 to $281) or the high/low method ($115/$185). Although the self-employed can use the government per diem rates to substantiate meals and incidental expenses, they must separately substantiate the actual lodging expenses.
REIMBURSING COMBINED LODGING, MEALS AND INCIDENTAL EXPENSES; THE "STANDARD" SYSTEM
Reimbursing the Same (or Less) Amount as the Government Employee Gets!
Per diem allowance. If an employer pays a per diem allowance in lieu of reimbursing actual expenses for lodging, meal, and incidental expenses incurred or to be incurred by an employee for travel away from home, the expense deemed substantiated is the smaller of the employers per diem allowance or the standard IRS-specified rate, which is the Federal per diem travel allowance for the locality of the overnight travel (Rev. Proc. 98-64; Sec. 4.01).
In the Continental United States (CONUS)- $80 to $281 for 1999: The Federal travel rates applicable to CONUS are published annually by the General Services Administration. Different rates (ranging in 1999 from $81 to $268) are published for approximately 600 different locations in CONUS, and all other CONUS locations are subject to the lowest rate (of $80 in 1999). Therefore employers will be continuously required to keep track of all these changing per diem rates - for no other reason than to determine whether their per diem rate actually paid exceeds the federal rate applicable for that locality, on the date of the employee's travel. This is serious now! (Rev. Proc. 98-64; Sec. 3.02(1); Sec. 4.01).
COMBINED LODGING, MEALS AND INCIDENTAL EXPENSES; THE SIMPLIFIED "HIGH/LOW" SYSTEM FOR CONUS
Reimbursement in Lieu of Federal Rate - Two Choices. General rule. If an employer pays a per diem allowance in lieu of reimbursing actual expenses for lodging, meal, and incidental expenses incurred by an employee for travel away from home and the employer uses this high-low substantiation method for travel within CONUS, the expense deemed substantiated is the smaller of the employer=s per diem allowance or this high-low amount set forth for the locality for such day. This high-low substantiation method may be used in lieu of the Federal per diem rate, but may not be used in lieu of the meals only substantiation method (Rev. Proc. 98-64; Sec. 5).
The $115/$185 Per Day Rule - For 1999.
Starting January 1, 1999, the combined lodging, meals & incidental expenses per diem high rate is $185 per day ($42 allocated to meals) for the 51 high cost locations (but seasonally adjusted), and $115 per day ($34 allocated to meals) for all other locations (Rev. Proc. 98-64, Sec. 5.02).
Comment: The high-cost localities are listed at the end of this chapter.
For 1998: For 1998, the combined lodging, meals & incidental expenses per diem high rate was $180 per day for the 40 high cost locations, and $113 per day for all other locations (Rev. Proc. 97-59; Sec. 5.02).
Half of $34/$42 not deductible in CONUS. For purposes of applying the high-low substantiation method, the Federal meal (M&IE) rate shall be treated as $42 for a high-cost locality and $34 for any other locality within CONUS (Rev. Proc. 98-64; Sec. 5.02).
Comment: Therefore, because 50% of meals are generally not deductible, $17 of the $115 and $210 of the $185 paid to the employee in 1999 is not deductible by the employer (creating phantom income) ['274(n); Rev. Proc. 98-64; Sec. 6.05).
MEALS AND INCIDENTAL EXPENSES ONLY (THE M&IE RATES)
The (A) Actual for Lodging and (B) Per Diem for Meals ... Option!
Reimbursement of meals only option. The employer may elect to pay the employee's actual lodging expenses plus a meal per diem allowance, whether the employee actually pays for the lodging or the lodging is directly billed to the employer. The amount of reimbursement may be calculated by either using (1) the Federal M&IE amount (or less) or (2) the allowance is computed on a basis similar to that used in computing the employee's wages or other compensation (e.g., the number of hours worked, miles traveled, or pieces produced) (Rev. Proc. 98-64; Sec. 4.02).
Other expenses that can qualify for the standard meal allowance. You can use the standard meal allowance to prove meal expenses you incur when traveling in connection with investment and other income-producing property. You can also use it to prove meal expenses you incur when traveling for qualifying educational purposes. It cannot be used to prove the amount of meals.
Deduction of Meals Only Option - for Both the Employee and the Self-employed!
Both an employee and the self-employed individual (including partners and partnerships) may deduct $30/$34/$38/$42/$46 for meals (Rev. Proc. 98-64; Sec. 4.03). The self-employed may deduct it above the line, i.e., in determining adjusted gross income (Rev. Proc.98-64; Sec. 7.07). The employees would be required to deduction it as an employee business expense below the line on Form 2106 (Rev. Proc. 98-64; Sec. 7.06). An employee who does not get an M&IE per diem may deduct the actual meal expenses or may use this optional method for meals-only deduction (Rev. Proc. 98-64; Sec. 7.06; Sec. 4.03).
Comment: This deduction is subject to the '274(n) 50-percent (or 55-percent) limitation on meal and entertainment expenses and, for employees, the 2-percent floor on miscellaneous itemized deductions (Rev. Proc. 98-64; Sec. 6.05; Sec. 7.05; Sec. 7.06; Sec. 7.07).
Rules to use the meals-only deduction option: The employee or self-employed individual must substantiate the elements of time, place and business purpose of the travel expenses (Rev. Proc. 98-64; Sec. 4.03).
Comment: Therefore, all this options tells the employee is what dollar amount to put on his or her expense report, but it does not relieve the employee or self-employed of filling in the expense report properly!
Related to employer problem. Taxpayers cannot use the standard meal allowance if they are related to the employer, that is if:
1. Your employer is your brother or sister, half-brother or half-sister, spouse, ancestor, or lineal descendant, 2. Your employer is a corporation in which you own, directly or indirectly, more than 10% in value of the outstanding stock, or 3. Certain fiduciary relationships exist between you and your employer involving grantors, trusts, beneficiaries, etc. (Pub. 463.p.5).
You may be considered to indirectly own stock, for purposes of (2), if you have an interest in a corporation, partnership, estate, or trust that owns the stock or if a family member or partner owns the stock.
$38 Special Rate for Transportation Industry in 1999
Employees and self-employed individuals in the transportation industry (i.e., airplane, barge, bus, ship, train, truck, etc.) may use a $38 daily M&IE rate for CONUS, and a $42 rate for OCONUS, instead of, for example, the $30 to $46 method (Rev. Proc. 98-64, Sec. 4.04(2)). Both the employee and the self-employed trucker may use this method, but it must be applied consistently for the calendar year (Rev. Proc. 98-64, Sec. 4.04(2)&(3)). For the employee trucker, the employer must compute the per diem at least monthly (Rev. Proc. 98-64, Sec. 4.04(4)).
The Problem - One Higher-cost City on Each Trip Required. Can a trucker who regularly drives between two lowest-cost cities use this method (e.g., driving a daily route from Casper, Wyoming to Billing, Montana and back)? No, as one of the requirements to use this method is "(b) regularly requires travel away from home which, during any single trip away from home, usually involves travel to localities with differing Federal M&IE rates" (Rev. Proc 98-64, Sec. 4.04(4)). Therefore, one of the cities, on each trip, must have a different per-day rate. (In the above example, both cities are $30 per day cities, and therefore the driver cannot use the $38 transportation rate!)
Comment: Weren't we trying to simplify the per-diem rules by eliminating some of the extensive record-keeping requirements for the transportation industry? As a practical matter, this requirement probably makes it impossible to use this "relief" provision!
For 1998: The special transportation industry rate for 1998 was $36/$40 (Rev. Proc. 97-59).
OTHER REQUIREMENTS WHEN USING PER DIEM
The Requirements to Use the Per Diem Option
An employee receiving a fixed allowance (e.g., reimbursement varies in proportion with miles driven or days away from home) will be allowed a deemed above-the-line deduction by not including the payments in W-2 income only if the following requirements are met:
1. Adequate accounting to the employer required: The employee must timely substantiate to the employer "the elements necessary to determine the amount of the allowance (e.g., the number of miles driven or the number of days away from home, AND the time, place and business purpose of the travel)" [Rev. Proc. 98-64; Sec. 7.01]. The per diem must be paid with respect to ordinary and necessary business expenses incurred, or which the payer reasonably anticipates will be incurred, by an employee for lodging, meal, and incidental expenses or for meal and incidental expenses for travel away from home in connection with the performance of services as an employee of the employer (Rev. Proc. 98-64; Sec. 3.01).
Major Misunderstanding!: The per diem option does not relieve the employee of properly verifying to the employer the time, place, and business purpose of each expense (Form 2106 instructions, page 2)! If the employee does not timely substantiate to the employer, the per diem becomes taxable income and additionally not deductible on Form 2106 (B.J. Baugh, TCM 1996-70).
2. Per diem cannot be more than the IRS-specified rates: The employee may only receive a per diem amount at or below the "IRS-specified rates" (e.g., 1999's 31-or-32.5-cents-per-mile, or the applicable Federal per diem allowance for meals of $30 to $46 and lodging of $50 to $239), or a flat rate or stated schedule (e.g., trucking industries meal per diem based on miles driven and airline industries meal per diem based on hours flown) that is reasonably calculated not to exceed the amount of the anticipated expenses (Rev. Proc. 98-64; Sec. 3.01(3); Sec. 3.03(1)).
Penalty: Excess per diem creates W-2 income.
3. Must return any per diem not substantiated: The employee must be required to return any portion of such an allowance which relates to days, miles, or travel not substantiated.
Example: Drake, Inc. provides President Deb an advance mileage allowance of $65, based on an anticipated 200 business miles at $.325 per mile, and Deb only substantiates 120 business miles. Deb MUST be required to (and actually) return $26.00 relating to the 80 unsubstantiated business miles.
Travel for Departure and Return Days - e.g. Partial Days of Travel
Per diem amount must be reduced when away part of workday. This is a real accounting nightmare! Special prorating is required of the meal (M&IE) per diem if the employee travels less than 24 hours of any day! If employees are in a "travel mode" for less than 24 hours on any particular day, the per diem rates must be prorated using any method that is consistently applied in accordance with reasonable business practice (Rev. Proc. 98-64, 6.04(2)).
NEW! Claim : of the standard meal allowance: For both the day the travel begins and the day the travel ends, the taxpayer can claim : of the standard meal allowance (e.g., $30/$46). Current Federal travel regulations reimburse Federal employees in this manner (Rev. Proc. 98-64; Sec. 6.04(1); Pub 463, page 6).
Example: Jen is employed in New Orleans as a convention planner. In March, her employer sent her on a three-day trip to Washington, DC, to attend a planning seminar. She left her home in New Orleans at 10:00 a.m. on Wednesday and arrived in Washington, DC, at 5:30 p.m. After spending two nights there, she flew back to New Orleans on Friday and arrived back home at 8:00 p.m. J’s employer gave her a flat amount to cover her expenses and included it with her wages. Jen can claim 22 days of the standard meal allowance for Washington, DC; : of the daily rate for Wednesday and Friday (the days she departed and returns), and the full daily rate for Thursday (Pub 463, page 6).
Example - : day: Tiger, Inc. pays employee Tiger a Federal M&IE per diem. Tiger leaves his home in Orlando at 7:00 p.m. on Monday and flies to Aspen (which has a $46 Federal per diem meals allowance) for a golf tourney and comes back Sunday at 10:00 a.m. For Monday and Sunday, Tiger could only receive a $34.50 meal per diem as he was gone from home less than 24 hours on those days.
Alternative - use any reasonable business practice: A 9 - 5 period may be deemed a full day and the day may be reasonably prorated into an a.m. segment (of $15/$23) and p.m. segment (of the full $30/$46) (Rev. Proc. 98-64, 6.04(2)). Also, the employer may prorate the total $30/$46 allowance over 6-hour segments and allow 1/4 of the M&IE rate for each segment (i.e., midnight to 6:00 a.m., 6:00 a.m. to noon) [Rev. Proc. 96-64, 6.04(1)].
Example - 2 day: Tiger, Inc. pays employee Tiger a Federal M&IE per diem. Tiger leaves his home in Orlando at 7:00 p.m. on Monday and flies to Aspen (which has a $46 Federal per diem meals allowance) for a golf tourney and comes back Sunday at 10:00 a.m. For Monday and Sunday, Tiger could only receive a $23.00 meal per diem as he was gone from home less than 24 hours on those days.
Example - 4 segments: If Lydia receives $34 per day in meal allowances and gets back to the office just before noon, she would have to quarter the per diem to calculate the "excess reimbursement" required to be returned to her employer ($34 X 3 X 2 segments = $17). SAMPLE ACCOUNTABLE EXPENSE REIMBURSEMENT PLAN
Be it resolved, that employees of YOUR COMPANY NAME Inc. be reimbursed for business expenses incurred on behalf of and authorized by YOUR COMPANY NAME Inc. (hereinafter referred to as "authorized business expenses") in accordance with the following criteria:
1. Business Purpose
Authorized business expenses covered by this plan must meet the requirements for deductibility as business expenses under Federal tax law. Such expenses must have been incurred by an employee in connection with the performance of services by such employee on behalf of YOUR COMPANY NAME Inc.;
2. Adequate Substantiation
Any employee requesting reimbursement for authorized business expenses hereunder must furnish to YOUR COMPANY NAME Inc. adequate substantiation of expenses to be reimbursed. Adequate substantiation shall be accomplished by the timely submission to YOUR COMPANY NAME Inc. of a company expenses reimbursement voucher properly completed in accordance with the substantiation requirements of Federal tax law, together with any relevant documentary evidence required under the substantiation requirements of Federal tax law. Such documentary evidence shall indicate the amount, description indicating the particular nature of the expense, time, place and business purpose or use of any authorized business expenses and any other necessary, related information;
3. Return of Excess Amounts
Any employee receiving payment from YOUR COMPANY NAME Inc. for an authorized business expense incurred by such employee on behalf of YOUR COMPANY NAME Inc. must return to YOUR COMPANY NAME Inc., within sixty (60) days after the incurrence of any such expense [or 120 days after the employer demands the report], any amount of such payment that exceeds the amount the employee has properly substantiated relating to such expense;
4. Request for Reimbursement
Any request for reimbursement for any authorized business expense hereunder must be submitted by any employee within sixty (60) days after the incurrence of any such expense [or 120 days after the employer demands the report] after the incurrence of such expense by such employee. Any request for reimbursement must be submitted via a properly completed and substantiated YOUR COMPANY NAME Inc. expense reimbursement voucher and related documentary evidence in accordance with the provision of paragraph (2) above;
5. Reimbursement of Transportation (Automobile) Expense
Authorized transportation (automobile) expenses hereunder shall be reimbursed to an employee at the rate of 32.5 cents per mile for properly substantiated mileage with an authorized company related business purpose;
6. Reimbursement of All Other Expenses
All other authorized business expenses hereunder shall be reimbursed in an amount equal to the actual cost thereof incurred by an employee;
7. Advances
In limited circumstances, advances of authorized business expenses to be incurred by an employee on behalf of YOUR COMPANY NAME Inc. may be granted by and at the sole discretion of YOUR COMPANY NAME Inc. The amount of money advanced by YOUR COMPANY NAME Inc. to an employee MUST be reasonably calculated not to exceed the amount of anticipated expenditures and made on a day within thirty days of the day that the anticipated expenditures are paid or incurred. The employee receiving such advance must substantiate any related expense to YOUR COMPANY NAME Inc. within sixty (60) days after the incurrence of any such expense [or 120 days after the employer demands the report] and return to YOUR COMPANY NAME Inc. within sixty (60) days after the incurrence of any such expense [or 120 days after the employer demands the report] any advanced amount that exceeds the amount the employee properly substantiated relating to such expense;
8. Additional Rules
Any reimbursement for expenses hereunder shall be payable to an employee by YOUR COMPANY NAME Inc. either (1) with a check separate and apart from the employee's regular paycheck, or (2) by a separate amount disclosed on the employee's regular paycheck. This plan shall be maintained on a calendar year (i.e., January 1 through December 31) basis and the method of reimbursement enumerated hereunder may not be changed by action of either YOUR COMPANY NAME Inc. or the employee at any time during a calendar year (i.e., once the method of reimbursement is used, it must be consistently followed for the rest of the calendar year).
9. Consequences of Failure
Consequences of failure by an employee to comply with any provision or provisions contained in paragraphs 1 through 8 above may, at the option of YOUR COMPANY NAME Inc., render the expenses related to such failure not reimbursable.
--------------------------- ----------- ------------------------------- Signature of Officer Date Title
|
|||||||||||||||||||||||||||||||
- Help To Keep Your Life In Balance
