- 17 -
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.
(1956).
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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