Scorp Owner taking per diem travel

[ed_accountant]

I have a client, scorp owner, single member and no other employees, that thinks they can deduct the per diem travel rates.

I believe the rule is that stockholders could not deduct the per diem travel rates and only deduct actual travel expenses. Is that correct? Thanks

[kcjenkins]

Yes, for the lodging but no for the M&IE deduction. Same as rule for Self-employed. Per diem allowance for lodging may only be used by employers for determining employee reimbursements and exclusion from income. Sole proprietors and employees may not use the per diem allowance to substantiate a lodging deduction: actual receipts are needed. [bracey, TC Memo 1998-254]

Rev. Proc. 2005-67

§ 7.05

If the amount of the expenses that is deemed substantiated under the rules provided in section 4.01, 4.02, or 5 of this revenue procedure is less than the amount of the employee's business expenses for travel away from home, the employee may claim an itemized deduction for the amount by which the business travel expenses exceed the amount that is deemed substantiated, provided the employee substantiates all the business travel expenses, includes on Form 2106, " Employee Business Expenses," the deemed substantiated portion of the per diem allowance received from the payor, and includes in gross income the portion (if any) of the per diem allowance received from the payor that exceeds the amount deemed substantiated. See § 1.274-5(f)(2)(iii).

However, for purposes of claiming this itemized deduction with respect to meal and incidental expenses, substantiation of the amount of the expenses is not required if the employee is claiming a deduction that is equal to or less than the amount computed under section 4.03 of this revenue procedure minus the amount deemed substantiated under sections 4.02 and 7.01 of this revenue procedure. The itemized deduction is subject to the appropriate limitation (see section 2.02 of this revenue procedure) on meal and entertainment expenses provided in § 274(n) and the 2-percent floor on miscellaneous itemized deductions provided in § 67.

§4.03

Optional method for meal and incidental expenses only deduction. In lieu of using actual expenses in computing the amount allowable as a deduction for ordinary and necessary meal and incidental expenses paid or incurred for travel away from home, employees and self-employed individuals who pay or incur meal expenses may use an amount computed at the federal M&IE rate for the locality of travel for each calendar day (or partial day) the employee or self-employed individual is away from home. This amount will be deemed substantiated for purposes of paragraphs (B )(2) and (c ) of § 1.274-5, provided the employee or self-employed individual substantiates the elements of time, place, and business purpose of the travel for that day (or partial day) in accordance with those regulations. See section 6.05 (1) of this revenue procedure for rules related to the application of the limitation under § 274(n) to amounts determined under this section 4.03. See section 4.05 of this revenue procedure for a method for substantiating incidental expenses that may be used by employees or self-employed individuals who do not pay or incur meal expenses.

[Terry D EA]

Wow, KC covered this one so well that my two cents worth may not be worth bringing up. Is there an accountable reimbursement plan? I know it doesn't matter in this scenario but was just wondering.

[OldJack]

Wow, KC covered this one so well that my two cents worth may not be worth bringing up. Is there an accountable reimbursement plan? I know it doesn't matter in this scenario but was just wondering.

Since KC fully answered the question, I will use the post to pose a related question.

Is an IRS "accountable reimbursement plan" required to be in written form? Any code cites?

[jainen]

>> Any code cites?<<

In typical bureaucratic jargon, Section 62( c) is written inside out. Like, this is not something else if it does not allow you to negate this other thing. I suppose it could all be done with a handshake or at least a wink, but really, OldJack, "accountable" rather implies that there is some sort of record, don't you think?

[OldJack]

I suppose it could all be done with a handshake or at least a wink, but really, OldJack, "accountable" rather implies that there is some sort of record, don't you think?

Well... accountable would certainly result in a record/receipt/proof of the facts and amount, but a "plan" is a way of doing?

Is an accountable document for a specific reimbursement (commonly called an expense report with receipts) qualified as paid under an accountable plan? Or, is some separate written plan document required, thus we ask the business do you have a "plan" or tell them you must get a plan?

Although I have not see one, I understand there are written plans out there for sale. Is that a scam?

[TAXBILLY]

My link

taxbilly

[OldJack]

The IRS article implies the IRS reviewed a written document and states the long established requirements:

>>The following are the three requirements for an accountable plan:

There must be a business connection and the expense must be reasonable.

There must be reasonable accounting for the expenses.

All excess reimbursements must be repaid in a reasonable time.<<

Taxbilly, what is your opinion?

[Lion EA]

Most of my clients are very small businesses and can have a board meeting over breakfast and jot down their minutes authorizing an accountable plan to reimburse employees for business-related expenses. One of my sole shareholder clients used to claim he held board meetings in the bathroom; I never inquired as to details.

[Gail in Virginia]

One of my sole shareholder clients used to claim he held board meetings in the bathroom; I never inquired as to details.

Seems very appropriate :P