Tax Alerts - May 2012
May 2012 PDF
May 2012 Articles
- Time for Post-filing Season Checkup
- Countdown to Supreme Court's Health Care Decision
- Congress Eyes Retirement Savings Plans in Push Toward Tax Reform
- How Do I - Compute Code Sec. 1231 Gains and Losses?
- FAQ - What is a Family Partnership?
- May 2012 Tax Compliance Calendar
- GAO Reports Confusion Over Foreign Account Reporting Under FATCA and FBAR
- IRS Commissioner Reviews Priorities/Accomplishments; Will Step Down in September
- IRS Releases Updated Collection Financial Standards for Ability-to-Pay
- 2012 Tax Season Ends Quietly
- IRS Eases Up on Local Lodging Deduction for Employees
- PA - Philadelphia Amends Business Privilege Tax Credits
The IRS has issued proposed “reliance” regulations that allow an employee’s deduction for local lodging that is business-related. Although the proposed regulations are technically not fully effective until published as final regulations, they allow taxpayers to deduct local lodging expenses under Code Sec. 162 (trade or business expenses) if the statute of limitations has not expired for the year of the deduction. In effect, the new rules are effective immediately.
While job-related expenses for travel away from home may be deductible as trade or business expenses, the income tax regulations historically have disallowed the employee’s deduction for local lodging (described as lodging that is not incurred in traveling away from home). However, in 2007, the IRS announced it would amend the regulations to change this rule. In the meantime, it would not challenge an employee’s deduction for temporary local lodging that was necessary for the employee to participate in a business function. The new reliance regulations go even further, with more specifics that liberalize the rules.
The new regulations provide that whether local lodging expenses are incurred in carrying on a taxpayer’s trade or business is determined under all the facts and circumstances. The regulations provide numerous examples of costs that would be deductible under these rules covering such situations as team training, late night projects, and rotating on-duty shifts.
The new regulations also provide the following safe harbor for an employee to deduct local lodging expenses:
- The lodging is necessary for the individual to participate fully or to be available for a bona fide business meeting, conference, training activity, or other function;
- The period of lodging does not exceed five calendar days and does not recur more than once per calendar quarter;
- The employer requires the employee to remain at the activity or function overnight; and
- The lodging is not lavish or extravagant and does not provide a significant element of personal pleasure, recreation or benefit.
If the employer reimburses the employee for expenses that would be deductible, the reimbursement will be nontaxable either as a fringe benefit, or as paid under an accountable T&E plan (assuming the appropriate requirements are met).
These new rules are good news for employees, as well as for employers that want their employees relieved of any tax burden when they are needed for special assignments.
To ensure compliance with requirements imposed by the IRS, please note, any advice contained in this publication was not intended, or written, to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. This publication is distributed with the understanding that the publisher and distributor are not providing legal, accounting or other professional advice and assume no liability whatsoever in conjunction with the information contained within this publication.