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As previously noted, the principles reflected in section
274(e)(3) and the above-quoted regulations apply for purposes of
section 274(n) by virtue of the cross-reference to section
274(e)(3) contained in section 274(n)(2)(A). Accordingly, with
respect to meal and entertainment expenses that an employee pays
or incurs and that are reimbursed by the employer, the section
274(n) limitation applies either to the employee (as the “person
who makes the expenditure”) or to the employer (as the “person
who actually bears the expense”). Sec. 1.274-2(f)(2)(iv)(a),
Income Tax Regs.
In the instant case, with respect to the per diem payments,
the parties agree that the section 274(n) limitation does not
apply to the employees (i.e., the Beech Trucking drivers), since
the per diem payments were excluded from their wages. The
parties agree that the section 274(n) limitation instead applies
to the drivers’ employer. Petitioner argues, however, that ATS,
not Beech Trucking, was the drivers’ employer and that section
274(n) thus does not apply to Beech Trucking.
Neither section 274(e)(3) nor the regulations thereunder nor
section 274(n) defines “employer” or “employee”. Consequently,
we look to common law concepts to determine the existence of an
employer-employee relationship. Nationwide Mut. Ins. Co. v.
Darden, 503 U.S. 318, 322-324 (1992); Burrey v. Pac. Gas & Elec.
Co., 159 F.3d 388, 393 (9th Cir. 1998); Alford v. United States,
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