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of services as an employee, under a reimbursement or other
expense allowance arrangement with his employer.” Expense
reimbursements under an accountable plan are not reported as
wages 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. In order to qualify as an accountable plan under section
62(a)(2)(A), an arrangement must satisfy the business connection,
substantiation, and return of excess requirements. Sec. 1.62-
2(c)(1), Income Tax Regs. The business connection,
substantiation, and return of excess requirements under section
1.62-2(d), (e), and (f), Income Tax Regs., are applied on an
employee-by-employee basis; therefore, the failure of one
employee to substantiate his expenses would not cause
reimbursements to other employees to be treated as made under a
nonaccountable plan. Sec. 1.62-2(i), Income Tax Regs.
A. Business Connection Requirement
The business connection requirement is satisfied if an
arrangement provides advances, allowances, or reimbursements only
for business expenses that are allowed as deductions under
sections 161 through 198, and that are paid by the employee in
connection with the performance of services as an employee of the
employer. Sec. 1.62-2(d)(1), Income Tax Regs.; see also Biehl v.
Commissioner, 118 T.C. 467, 482 (2002), affd. 351 F.3d 982 (9th
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