Accountable Plan for S Corporation
Response
Accountable plans can be set up in a variety of ways, so long as they meet basic requirements. The requirements are dicussed on page 29 of Pub 463.
Essentially, to offer an accountable plan, an employer must comply with three standards:
- The expenses must have a business connection;
- The expenses must be substantiated within a reasonable period; and
- The employee must return any money not spent to the employer, also within a reasonable period.
If any of the three conditions isn’t met, the reimbursement arrangement is treated as a nonaccountable plan. In other words, the reimbursements are taxable compensation to the employee and subject to employment taxes.SUBSTANTIATION
“Substantiated” means the employer must collect documentation that shows the amount, time, place, and business purpose of the expense. This generally entails an account book, log, receipt, bill, or credit card statement. It doesn’t have to be the original, but the proof must be specific enough to differentiate the types of expenses. For instance, a credit card statement for a hotel expense would not be enough unless it clearly separated meals and entertainment from an overnight stay expense. A list of categorized expenses is also not enough, unless the individual purchases are detailed and supported. The required documentation is covered under two different sections of the Code.
REIMBURSEMENTS AND PER DIEMS
Businesses and their employees may rely upon federal per-diem tables and mileage allowances to report meal and travel expenses rather than documenting specific costs. This is true even if the amount claimed is less than the amount the employee spent. Employers must still retain dates, times, and the business purpose of the expense. If your client is using per-diem reimbursement amounts, be sure to adjust for cost differences in different areas for per-diem amounts and prorate for partial days of travel.
References Pub 463, p. 29https://www.irs.gov/pub/irs-pdf/p463.pdf
Starting Accountable Plan
Accountable Plan