IN THIS ISSUE

	Travel Expenses
	Windstar Year-end NRA Tax Training
	Windstar Publishing Tax Guide Revision
	ILW.com U.S. Tax Compliance Phone Seminar
	Recently Published Article by Paula N. Singer
	Upcoming Events

Travel Expenses

by Paula N. Singer, Esq.

Generally, payments made to or on behalf of individuals are income subject to income tax and to withholding and reporting unless an exception applies. Determining when an exception applies is not always easy. This is especially the case with regard to reimbursed travel expenses.

The Code

Section 61(A) (1) of the Internal Revenue Code (“the Code”) provides that gross income means all income from whatever source derived, including compensation for services.  Section 117 of the Code provides an exception from tax for qualified scholarship and fellowship income. In contrast, nonqualified scholarship and fellowship grants are subject to tax.  (For a discussion of qualified and nonqualified scholarship and fellowship grants, see the article “Stipends” in the September/October 2008 edition of A View from the Crow’s Nest.) As a result of these Code provisions, payments and reimbursements for travel expenses are includable in the gross income of the recipient unless an exemption is provided by the Code or an income tax treaty.  This is the case even when the payments and reimbursements are made to a third party, such as an airline or hotel rather than to the individual.

It is not the fact that payments and reimbursements are for travel expenses or the fact that the expenses are made or reimbursed through an expense report that determines whether the amounts shall be taxed or excluded from income.  Rather, it is the activity to which the travel expenses are attributable that determines in the first instance how travel expenses payments and reimbursements shall be taxed – employment or self-employment services, studying or, non-service related training or research.  It is the character of that income – wages, self-employment compensation, noncompensatory scholarship, or fellowship grant - that determines the exceptions that may be used to avoid the tax when conditions for the exception are met.

Excludable Travel Expenses

The most common exception from taxation for travel expense payments and reimbursements is the deduction from income allowed by Section 162 of the Code for travel expenses for lodging, meals, and incidentals (other than amounts which are lavish or extravagant under the circumstances) paid or incurred while the recipient is away from his tax home in the pursuit of a trade or business. When these business expenses are made under an accountable plan as allowed by Section 62(c) and described in Treas. Reg. Section 1.62-2, they are not subject to withholding or reporting.

In order for payments and reimbursements to be excluded from income within this framework, the travel expenses must:

1. Have a business connection
2. Be paid or incurred for travel while the recipient is “away from home”
3. Be paid or reimbursed under an accountable plan

If any one of these requirements is not met, the payments and reimbursements are subject to tax, withholding, and reporting in accordance with the character of the income unless another exception applies.

One exception related to travel expenses applies when the expense is incurred primarily for the benefit of the employer. For example, the IRS has ruled that allowances and reimbursements made to individuals by a prospective employer for reasonable expenses such as transportation, meals, and lodging incurred in connection with interviews for possible employment are not includable in the individual’s income to the extent that the amount does not exceed the expenses incurred (Rev. Rul. 63-77, 1963-1 C.B. 177).

Business Connection Requirement

Section 62(a)(1) of the Code provides that the term “adjusted gross income” means gross income minus deductions attributable to a trade or business carried on by the taxpayer, if such trade or business does not consist of the performance of services by the taxpayer as an employee.  Section 62(a)(2)(A) provides that the term "adjusted gross income" means gross income minus the expenses paid or incurred by the taxpayer, in connection with the performance by him of services as an employee, under a reimbursement or other expense allowance arrangement with his employer.  An arrangement meets the business connection requirement if the employer pays advances, allowances (including per diem allowances) or reimbursements only for deductible business expenses that the employee pays or incurs while performing services for the employer.

Section 132(a) (3) of the Code provides that gross income shall not include any fringe benefit which qualifies as a working condition fringe.  Section 132(d) defines the term “working condition fringe” as any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 (trade or business expense...).  For purposes of working condition fringes, Treas. Reg. Section 1.132-1(b) (2) provides that the term “employee” includes “any independent contractor who performs services for the employer.”

Therefore, payments and reimbursements for travel expenses attributable to the performance of services by either an employee or a self-employed individual for an employer may be excluded from income if they meet the “away-from-home” requirement and are paid or reimbursed under an accountable plan.

Not included under these rules are payments and reimbursements for travel that is attributable to the study, training, or research of the recipient for which no services are required in return.  These travel expense payments and reimbursements (called “travel grants”) are fully taxable unless another exception applies to exempt them from tax.  Also not included under these rules are reimbursements for travel expenses of an individual made to a third party rather than to or on behalf of the individual.

Paula Singer, Esq., Co-founder and Chairman of Windstar Technologies, Inc. and partner in the tax law firm, Vacovec, Mayotte & Singer LLP, Newton, MA, has over 25 years of experience providing advice and compliance services to individuals and their employers, and payers on cross-border matters.

Watch for Volume 6, Number 5, for a discussion on Temporarily-Away-From-Home Businesses Expenses.

Q: One of our staff researchers submitted an expense reimbursement request with receipts for meals and lodging expenses attached.  Since he submitted receipts, am I correct in planning to exclude the reimbursement from income under Section 162?

A: Not necessarily.  The fact that receipts are submitted is not in and of itself grounds to exclude expense reimbursements from income.  You still need to analyze the reason for the expenses, determine whether or not they were incurred while the individual was conducting business in his capacity as your employee, whether the expenses were incurred while the employee was away from home, and whether or not your organization’s accountable plan rules have been followed.

Save the Date: Windstar’s Year-end Nonresident Alien Tax Training Workshop December 8th – 11th

Windstar’s next comprehensive Nonresident Alien Tax Training will occur December 8th – 11th at the Doubletree Guest Suites in Boston, Massachusetts. 

Attendees will learn how to tackle year-end processing with confidence.  In addition to sessions focused on year-end processing, the seminar will also feature in-depth instruction on nonresident alien tax and compliance issues along with hands-on training on the International Tax Navigator®.

The Doubletree Guest Suites is an all suite hotel located on the banks of the Charles River, just minutes from downtown Boston and its major attractions.  Hotel features include:

• Complimentary shuttle service to major tourist destinations in Boston and Cambridge and nearby train stations
• Low cost transportation to and from Logan International Airport
• High-def flat screen televisions in each room
• Scullers Jazz Club

The Doubletree Guest Suites Boston received rave reviews from the April NRA training attendees! 

To receive a complete agenda when it is available in early September, e-mail training@windstar.com. 

Windstar Publishing Announces the Revision of “Cross-winds: What You Need to Know About the U.S. Taxation of J-1 Exchange Visitors”

Award winning author Paula N. Singer, Esq. has revised her guide “Cross-winds: What You Need to Know About the U.S. Taxation of J-1 Exchange Visitors.”  The guide provides comprehensive information on:

1. Employment limitations
2. Documentation
3. Tax exemptions
4. Treaty benefit qualifications
5. Tax filing requirements

Included is a resources chapter describing helpful websites, government resources, and Windstar reference guides.

Visit www.shopping.windstar.com to order your copy today.

Paula N. Singer, Esq. Featured as Discussion Leader on ILW.com’s U.S. Tax Compliance Phone Seminar Series

Windstar Technologies has partnered with ILW.com to present three telephone seminars on U.S. Tax Compliance.  The seminars feature Paula Singer, Esq., Chair of Windstar and Partner, Vacovec, Mayotte & Singer, LLP as discussion leader for the phone seminars. Paula is joined in the three-part seminar by industry experts:

• Lowell Hancock, International Tax Specialist with the IRS
• Marianne Couch, JD, Principal with COKALA Tax Reporting Solutions, LLC
• Terri Crowl, Senior Product Support Analyst with Windstar Technologies

An audio CD of the first two seminars, titled “Resident or Nonresident?” and “Withholding and Reporting,” will be available soon for purchase on ILW.com. The final seminar, scheduled August 20th, will address tax returns for foreign nationals.

Visit the Immigration Lawyers Weekly website for additional information on the presenters, program outlines, and pricing and registration.

Recently Published Article by Paula N. Singer

Paula N. Singer, Esq. recently had the following article published:

• “Tax Reform for Americans Abroad,” Tax Notes International, Tax Analysts, May 25, 2009

American Citizens Aboard used this article as an attachment in a letter written to Paul Volcker, chairman of the President’s task force on tax code review, concerning the elimination of the citizenship based tax system.

Windstar Will Dock at the Following Events

Windstar Summer Nonresident Alien Tax Training
Doubletree Guest Suites
Boston, MA   
August 4 – 7, 2009

* * * * * * * * * * * * *

ILW.com U.S. Tax Compliance Phone Seminar
August 20, 2009

* * * * * * * * * * * * *

Look in future issues of Crow’s Nest or visit http://www.windstar.com/public/events.html for the latest in trade show information.

©Copyright 2009 by Windstar Technologies, Inc. Windstar reserves all rights to this electronic material. Information contained in this publication is based on the best information available at the time of publication.  While believing the information in this publication to be accurate, Windstar accepts no legal responsibility for its accuracy.

Since 1995 educational institutions, hospitals, research institutions, and corporations have relied on Windstar Technologies, Inc. to deliver the expertise to comply with the U.S. tax residency rules, tax rates, and special tax exemption rules under the law and U.S. treaties. When government agencies require information about foreign nationals in the workplace, Windstar provides straightforward analysis and reporting. Comprehensive software for analysis and reporting, expert knowledge, and unparalleled customer service combine to make Windstar the first choice for nonresident alien tax compliance.

Crow's Nest Archives

Windstar Home