Employee Expenses from Prior Years


W

W

An employee makes an expense reimbursement claim for auto-related expenses
to his employer for expenses that are several years old. If the company
reimburses these expenses to the employee, can they be claimed as company
expenses in the current tax year?
 
Ad

Advertisements

A

Arthur Kamlet

An employee makes an expense reimbursement claim for auto-related expenses
to his employer for expenses that are several years old. If the company
reimburses these expenses to the employee, can they be claimed as company
expenses in the current tax year?

EIther this is reimbursed under an accountable plan or a nonaccountable
plan.

If a nonaccountable plan, the reimbursement is treated as taxable
employee wages for both the payer and payee.


One of the requirements of an accountable plan is the employee
submits reimbursement requests with proof of expenses "within
a reasonable time."


See http://www.irs.gov/pub/irs-pdf/p535.pdf pages 41-42 where the IRS
announces they will treat employee requests for reimbursement made
within 60 days of incurring the expense and repays any cash advance within
120 days as being made "within a reasonable time."


Your case is a few years old and therefore no longer comes within the
accountable plan rules. They can still be reimbursed as an
unaccountable plan which treats them as taxable wages.
 
A

Alan

With all due respect to my esteemed colleague, Art - I am not sure I agree
with his assessment (though on examination it is very possible that the IRS
would take a similar position). The example he references deals with an
ADVANCE made against an expense report to be submitted later. Your
situation differs in that it deals with a late request for reimbursement
where there was no advance given to the employee.

There are a few items I would consider before offering guidance -
1 - what is the official written company policy on reimbursements? How
often are they due? What support is required with them?

2 - does this employee own any part, more importantly any SIGNIFICANT part,
of the company? If this is HIS S Corp it puts him in a different light than
if he's just an employee of an unrelated organization. Though there may be
a way to deal with this too, but more on that shortly.

3 - has the company ever done this before and if so under what
circumstances?

I can foresee a situation where a company says to its employees "we're short
on cash right now. So if you work with us and hold your expense reports
until our situation improves then we will honor your expense reimbursement
requests in later years." IF the company were to have such a policy it
would need to be documented, not only in the form of a memo but also in the
minutes of the company's records. I seriously doubt, however, that any
company would formally adopt such a policy. As a tax professional and
business advisor I would advise AGAINST such a policy.

Regarding a company owner doing this - there are lots of cases where the
owner can't get all that's due to him out timely. Generally, and more
especially for the smaller businesses, the owners get paid last. If this
was properly documented annually in the minutes he could make a case for
taking his money out later. But it should have been documented annually.
SIDE NOTE - this is one of the reasons I'm a proponent of LLCs having annual
meetings with minutes like corporations due, documenting this sort of thing
can help later on.

Gene E. Utterback, EA, RFC, ABA
The governing law on this subject is in the Regulations for sections 62,
162 and 274. The "reasonable period of time" governing law is at
1.62-2(g). It is this reg that the IRS uses for the Pub 535 words. The
only safe harbors listed under the definition are for advances and
returns of excess payments. Therefore, one is left with a definition
that says a reasonable period of time depends upon all the facts and
circumstances. I have not researched any rev. rulings or court cases on
this specific issue. I have seen a few written accountable plans and
they all either included a statement on what was a reasonable period or
pointed one to the policy that included the definition. Any payment for
reimbursement beyond the specified time period was wages subject to
payroll taxes. I have seen time periods that ranged from no later than
30 days after the expense has occurred to no later than 90 days after
the expense was occurred. I have no doubt that there are probably
policies that extend beyond 90 days.
Personally, I would never recommend a policy that extended beyond the
end of the year in which the expense occurred except for those expenses
occurring in the last quarter, in which case I would recommend no later
than 90 days after the end of that quarter.
 
Ad

Advertisements

G

Gene E. Utterback, EA, RFC, ABA

SNIPPED A BUNCH

SNIPPED SOME MORE
The governing law on this subject is in the Regulations for sections 62,
162 and 274. The "reasonable period of time" governing law is at
1.62-2(g). It is this reg that the IRS uses for the Pub 535 words. The
only safe harbors listed under the definition are for advances and returns
of excess payments. Therefore, one is left with a definition that says a
reasonable period of time depends upon all the facts and circumstances. I
have not researched any rev. rulings or court cases on this specific
issue. I have seen a few written accountable plans and they all either
included a statement on what was a reasonable period or pointed one to the
policy that included the definition. Any payment for reimbursement beyond
the specified time period was wages subject to payroll taxes. I have seen
time periods that ranged from no later than 30 days after the expense has
occurred to no later than 90 days after the expense was occurred. I have
no doubt that there are probably policies that extend beyond 90 days.
Personally, I would never recommend a policy that extended beyond the end
of the year in which the expense occurred except for those expenses
occurring in the last quarter, in which case I would recommend no later
than 90 days after the end of that quarter.
Thanks to Alan for the citation. I always appreciate a cite to relevant
authority. I have NOT checked the cited authority (yet) so I cannot agree
or disagree with his assessment. I can say this - checking relevant
authority is ESSENTIAL prior to taking a position.

Gene E. Utterback, EA, RFC, ABA
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Top