Frank and Barbara Biehl - Page 17

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          and Tax Statement, and are exempt from withholding and payment of           
          employment taxes.  Sec. 1.62-2(c)(4), Income Tax Regs.9                     
               On the other hand, the regulations provide that amounts paid           
          to an employee under a nonaccountable plan, one that does not               
          meet all three requirements for an accountable plan, are reported           
          as wages or other compensation on the employee’s Form W-2 and are           
          subject to withholding and payment of employment taxes.  Sec.               
          1.62-2(c)(5), Income Tax Regs.  As a result, the burden of                  

               9  This is consistent with prior law, beginning in 1958,               
          under which employees were not required to report amounts                   
          received as reimbursements for “travel, transportation,                     
          entertainment, and similar purposes paid or incurred by him                 
          solely for the benefit of his employer”.  Sec. 1.162-17(b)(1),              
          Income Tax Regs.  Before 1958, employees were technically                   
          required to include in gross income amounts received as                     
          reimbursement and claim a corresponding deduction in arriving at            
          adjusted gross income, resulting in a wash.  See Stanley &                  
          Kilcullen, The Federal Income Tax, A Guide to the Law 25 (3d ed.            
          1955), 54 (2d ed. 1951).  Under the regulations, the reimbursed             
          amount was not treated as wages and therefore not subject to any            
          withholding.  See sec. 31.3121(a)-1(1), Employment Tax Regs.                
               Under current law, amounts paid under accountable plans are            
          excluded from gross income as working condition fringe benefits             
          under sec. 132(a)(3) and (d).  See sec. 1.62-1T(e)(5), Temporary            
          Income Tax Regs., 53 Fed. Reg. 9874 (Mar. 28, 1988).  The                   
          regulations on working condition fringe benefits under sec. 132             
          track the requirements of the accountable plan regulations under            
          sec. 62(c), providing that a cash payment made by an employer               
          will not qualify as a working condition fringe benefit unless the           
          employer requires the employee to use the payment for “expenses             
          in connection with a specific or pre-arranged activity or                   
          undertaking for which a deduction is allowable under section 162            
          or 167", verify that the payment was used for such expenses, and            
          return to the employer any part of the payment not so used.  Sec.           
          1.132-5(a)(1)(v), Income Tax Regs.; see also infra note 12.                 

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