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of the substantiated expense are treated as paid under a
nonaccountable plan.” Sec. 1.62-2(c)(3)(ii), Income Tax Regs.
Payments under an accountable plan are excluded from the
employee’s gross income, are not reported as wages or other
compensation on the employee’s Form W-2, and are exempt from
withholding and payment of employment taxes. Sec. 1.62-2(c)(4),
Income Tax Regs. Payments under a nonaccountable plan are
included in employee gross income, are reported on the employee’s
Form W-2 as wages or other compensation, and are subject to
withholding and payment of employment taxes. Sec. 1.62-2(c)(5),
Income Tax Regs. Expenses attributable to nonaccountable plan
payments are deductible by the employee, but only as
miscellaneous itemized deductions. Id.
Section 1.62-2(i), Income Tax Regs., provides that the
requirements of paragraphs (d), (e), and (f) (business
connection, substantiation, and returning excess amounts,
respectively) are to be applied “on an employee-by-employee
basis.” Thus, violation of one of those requirements by one
employee “will not cause amounts to be paid to other employees to
be treated as paid under a nonaccountable plan.” In other words,
even if Nomura’s assumed reimbursement of the legal fees violates
one of the foregoing requirements of the regulations and is,
therefore, treated as made under a nonaccountable plan, Article
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