Accountable Plan

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What makes a reimbursement plan “accountable”?

Reimbursements to employees for tools and equipment used in the business are tax free when they are part of an accountable plan. An IRS ruling shows how to make the plan qualify. 

How the system works: A taxpayer started a firm that sold professional tools and equipment and the services to support and repair the equipment. It hired technicians at hourly wages. They had to provide and maintain their own tools and equipment and use the tools only in the taxpayer’s business. The business reimbursed the technicians for some expenses incurred in buying, maintaining and being trained to use the tools. Each technician was told at the beginning of the year the maximum reimbursement he or she was eligible for; but to be reimbursed all costs had to be documented and there was no guarantee the maximum reimbursement would be received. The reimbursed amount was unrelated to compensation.

 The company’s question to the IRS: Can this qualify as an accountable plan?

 IRS Ruling: The reimbursement plan is an accountable plan, even though employees are not reimbursed for 100% of the business expenses incurred. There is a business reason for the plan, employees must substantiate the reimbursements, and employees do not keep excess reimbursements. Therefore, reimbursements to the technicians are not included in’ gross income. [LTR 200930029]

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