COMMENT: The big difference between an accountable and nonaccountable plan is whether you have to provide your employer with receipts and other paperwork. If you do, the plan is accountable and the employer can leave the reimbursement off your W-2. Fail to turn in paperwork and the plan becomes nonaccountable. The reimbursement then goes on your W-2. That used to mean that one would have to itemize and claim employee business expenses. The new tax law disallows employee business expenses, meaning that – beginning with 2018 - one has income with no offsetting deduction.
Sunday, July 7, 2019
Driving To South Africa
Our protagonist this time is Donald Durden. He is a pastor with the Seventh Day Adventist Church, and he was based out of Columbus, Ohio for the tax year at issue. His territory included part of Maryland, Ohio, western Pennsylvania, West Virginia, and a part of Virginia.
Got it. I am guessing the case has something to do with travel expenses.
The Church reimbursed his business-related travel expenses using both an accountable and nonaccountable plan.
I guessed right.
Pastor Burden claimed $41,950 of unreimbursed employee expenses when he filed his 2013 tax return.
The IRS wanted to know what made up this number. Actually, so do I. There were all kinds of travel in there as well as vehicle expenses and other stuff, including “special shoes.”
Let’s talk about his South Africa visit.
He claimed travel expenses of $10,897. When pressed, he did not present receipts or records, opting to explain that he was away from home on ministerial duties for 100 days. At $180 per day – which he described as the “conservative high-low method” - that comes to $18,000 and was way more than he actually deducted. Why was there an issue?
Folks, it does work like that. I presume that he was referring to a per diem, but a per diem refers to hotels, meals and incidental expenses; it does not mean the air fare to get there in the first place. Additionally, one still has to substantiate the business reason for the trip and document the number of days against which to multiply the per diem. I cannot vacation for two weeks in Europe and make it deductible just by wandering into an accountants’ office one afternoon in Budapest.
Our pastor had a receipt or two. He elaborated that he visited the Apartheid Museum, the Robben Island Museum, Nelson Mandela’s and Bishop Tutu’s residences, and the botanical gardens.
Sounds like a vacation, murmured the IRS.
Not at all, corrected the pastor. I was working.
How were you working, asked the IRS hopefully.
I said a prayer of dedication during a ceremony.
I led daily devotions with the parishioners who travelled with me. There was also a naming ceremony. I chose Chloe for my name.
Can you get to any records? Daily schedules, appointments, anything to substantiate ….
For international travel to be deductible, the primary purpose of the trip has to be business related. It is somewhat harsh, but that is the rule. If the trip is 45% business, there is no deduction. You do not get to multiply the cost of the trip by 45 percent.
It was a really good prayer, gleamed the pastor.
He also went to the Dominican Republic. Twice. Turns out his wife has family there.
Of course, sighed the IRS. Let’s go over those records. Let’s start with how you got there.
I drove there, said the pastor.
I have a log. You see, right here, yeah, in January, I drove there. I left on a Sunday and returned the next Wednesday. In September I also left on a Sunday and came back eight days later.
You can’t drive to …
Ah, here it is. You see, my log shows that I drove to South Africa too. That was in December, added the pastor, squinting his eyes while remembering.
And so it continued, including other items that we cannot discuss without sounding like The Onion.
The Court bounced pretty much everything.
The Court also kept the penalty.
This time we discussed Burden and Torres v Commissioner.
It may be my favorite case so far in 2019.