Tax-free employee reimbursements under an accountable plan.

Ref: IRS Revenue Rulings 2012-25 and 2012-37.

Reimbursements to employees under an accountable plan are not included in employee wages and are fully deductible by the employer. Common examples are reimbursements for mileage using the IRS standard mileage rates and reimbursement for employee cell phone use.

3 tests: In order to qualify, a plan must meet three tests: Business connection, substantiation and returning excess. These are discussed in Regulation 1.62-2.

IRS discusses the Business Connection Test in the above Revenue Rulings. In summary, the business connection test is met if the plan is not “wage rechacterization,” the expenses are incurred by the employee, and the expenses are in connection with the performance of his/her services.

Used correctly, this rule can greatly benefit both the employer and employee. An example would be reimbursement of employee business mileage at the 2014 rate of 56 cents per mile (when the employee is driving a hybrid car). The employer receives the deduction of 56 cpm and the employee receives the reimbursement tax-free.

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US Senate postpones action until after November election.

US Senate Majority Leader Harry Reid confirmed in June that there will be no actions on the extender package in the Senate until after the midterm election in November.

Depreciation for small businesses: This means that the IRC Section 179 election for accelerated depreciation on business property acquired in 2014 will remain at a maximum of $25,000 for the time being. We won’t know about restoration to the old limits (or somewhere in between) until November at the earliest.

Ref: Regulation 1.67-4; TD 9664, 5/8/2014

Some trust/estate expenses are not fully deductible. On May 8, the IRS issued final regulations listing those administrative-type expenses which will be allowed as fully deductible on a trust or estate return.  Among those are:

1. Ownership costs: Such as property tax on non-rental real estate.

2. Tax preparation fees tied to the trust/estate: Examples given are fees to prepare estate returns, trust returns and the decedent’s final individual income tax returns (year of death).

3. Appraisal fees: Incurred to value trust/estate assets as of the decedent’s date of death (or the alternate valuation date) or subsequent valuations for any other valid trust/estate purpose.

4. Fiduciary expenses: For example, probate court fees/costs, fiduciary bond premiums and cost of certified copies of the decedent’s death certificate.

5. Investment advisory fees: If greater than those charged to an individual investor. Examples would include professional advisory fees tied to advice regarding the beneficiaries of retirement accounts or fees charged to create a listing of security values as of the date of death (or alternative valuation date).

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