Employee, Accountable Plan, Meal Expenses -
8/15/08
at 6:31 PM
Help! I have several clients with the same issue and I don't seem to have a clear answer.
They all work for an employer that reimburses expenses under an accountable plan, but the employer caps the meal expense at an amount less than the federal per diem. The employer does not pay the employee an allowance in advance, but has them submit an expense report with receipts attached for review, approval and reimbursement of approved expenses.
If the employee spends less than the employer cap, he doesn't get the difference. If the employee spends more than the cap, he is not reimbursed for the excess.
The employer has a significantly large number of employees on this plan. Many of the employees have gotten together and are doing their tax returns using the standard meal allowance as the amount of their expense and are taking an unreimbursed employee business expense deduction for the amount of the standard meal allowance per diem less the amount reimbursed by the employer.
My research has led me to believe that they should not be doing this. However, the clients whose returns are at issue now believe that I am cheating them because of how they interpret Publication 463 rules for accountable plans. I've looked at both Pub 463 and the employer rules and believe that they want me to take an improper position.
Other opinions please? I certainly don't want to short-change clients on deductions, but also don't want to bring a bunch of unsustainable audits down around our ears either.
You say, "My research has led me to believe that they should not be doing this." What research and what conclusions? Tax research? Dept of Labor research? other????
You say, "...using the standard meal allowance as the amount of their expense and are taking an unreimbursed employee business expense deduction for the amount of the standard meal allowance per diem less the amount reimbursed by the employer." This seems appropriate. Why do you not think so?
I don't understand why the "method" of accounting to the employer would affect the "method" used on the 2106. The "method" used with the employer is "actual expense," but then it ISN'T, because the employer is stipulating their own maximum amounts, which makes it a "hybrid" method.
2106 Calculation would be expense, less reimbursement equals either a deduction or income. Seems very simple.....
Am I missing something?
The fact that this employer has found a somewhat "unique" method of limiting their cost as they reimburse their employees (and perhaps a method that is "irritating" to the employees!) wouldn't seem to affect the 2106 method.....it may be adequate grounds for an "employee representative" to have a discussion with the employer, but why would this affect the 2106? And, why does it cause you concern?
I agree with SunTaxMan. No problem here. Done all the time. Employers have budgets. They can specify any amounts for reimbursement they wish, for mileage or meals, etc, and it does not necessarily change when IRS updates amts. Taxpayer gets the difference between reimbursed amount and IRS allowance, if less, (if he has enough to get over 2% exclusion on Sche A,) or reports as income if more.
I posed this same issue to Delphis Tax Research in April and was informed that the employee was not allowed to use the standard meal allowance since the taxpayer was reimbursed under an accountable plan. In effect the employee had been reimbursed for his out-of-pocket expense. If he had excess costs that were not reimbursed, he could deduct his actual cost. The authority provided was Publication 15A.
That is the source of my conflict.
I have asked them to reconsider their research opinion as it appears to me that it conflicts with what Publication 463 says.
A recent discussion with an IRS tax examiner regarding the issue left me concerned as he said that there are several cases pending in his district on a similar question. He also did not believe the standard meal allowance in this situation was appropriate. However, he was going to conduct further research and let me know.
I am aware of at least one pending correspondence audit at another tax preparation office for a return where the standard meal allowance position was taken by the preparer. It has not been concluded.
I have checked Pub 15A and can find no reference to this subject. Pub 15, however, discusses accountable and non-accountable plans and per diem amts, but only to the extent of whether they constitute taxable wages. However, Pub 463 states in Chapter 1, "you can use the standard meal allowance....whether or not you are reimbursed for your travelling expenses." I interpret that to mean they can use the M&IE rate, regardless.
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