For reimbursements, the USM Foundation has an “Accountable Plan,” which is a term developed by the IRS to set forth rules, define legitimate expense reimbursements and require submission of original documentation.
A qualified accountable plan requires all expenditures to:
- Have a bona-fide business purpose: The IRS may view a disbursement as providing a personal benefit if there is any doubt concerning its business purpose. Even though in some cases the business purpose may be implied, it must be specifically documented so that a third party would have no question as to its benefit to the institution. Paying or reimbursing for “lavish or extravagant” expenses is unacceptable.
- These terms are used in IRC Sec 162 and are repeatedly used in IRS documentation, usually with a statement that such expenses are non-deductible. The USM Foundation will determine at its sole discretion whether to pay, reimburse, or reduce payment requests for expenses that are considered “lavish or extravagant.” If you feel there is justification for a reimbursement that might be deemed lavish or extravagant, please provide your reasoning when submitting the request.
NOTE: The USM Foundation Board established the maximum allowable reimbursement for meals, which are $25 for breakfast and lunch and $75 for dinner.
- Business use of personal car at the standard mileage rate
- Expenditures under $25 (per item)
- Per diem based on U.S. State Department rate (see Travel Reimbursements for more information.)
- Partial reimbursement from University sources: if an employee is reimbursed for a portion of his/her expenses from University sources, a copy of the receipt and the State reimbursement form will be accepted.
- Credit cards: credit card statements do not provide adequate supporting documentation. Original receipts for credit card purchases are obtainable from the vendor and should always be attached to the check request.
- A reconstruction of records is allowable if originals have been lost through circumstances beyond the person’s control, such as fire, flood, etc. There may be some cases in which the USM Foundation will reimburse a person for bona fide business expenses when receipts have been lost, but the reimbursement will generally be included as taxable compensation.
- Note: The IRS requires that payments to individuals which do not qualify as part of an “Accountable Plan” be included in the person’s income, either on a W-2 form or on a form 1099.
- IRS Reg. 1.62-2(f): an accountable plan “must require persons to return within a reasonable period of time the amounts reimbursed that exceeded substantiated business expenses (advances).
- IRS Reg. 1.62-2(g)(2)(i) Reasonable Period – Safe Harbors: “…an advance made within 30 days of when an expense is paid or incurred; an expense substantiated to the payer within 60 days after it is paid or incurred.” OR: “An amount returned to the payer within 120 days after an expense is paid or incurred will be treated as having occurred within a reasonable period of time.”
- IRS Reg. 1.62(h) states that if a company has an accountable plan, but the person does not return excess amounts within reasonable time, the amount, which is taxable, is reported as compensation to the person.
Note: While they are mentioned in the same regulation, the 30-60-120 day time frames are three distinct parts. The 30 and 120 day requirements apply to advances and returns of excess amounts. The 60 day requirement is the general rule for expenses that are not advances.