2. INSTRUCTOR INFORMATION Larry Monshor Midwest Professionals, P.L.L.C. Larry@midwestprofessionals.com Email is best
3. Class Objectives To gain an understanding of: The laws that govern travel and how the laws impact tribal travel policies Tribal rights to set policy and procedures Show how to: Minimize employee taxable items Lessen the chances of possible questioned costs / audit findings Assure tribal travel policy compliance with Federal requirements
4. In this class we’ll be covering: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titled Travel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation
5. In this class we’ll be covering (continued): The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: Aspects of taxation of excess expense money (W2, 1040 and form 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
7. Your job entails … Compliance with Tribal travel policy /procedures: A. Travel request and advance properly approved B. Travel advance processed C. Travel reconciliation submitted timely (up to 120 days after trip completed per IRS), with correct per diem rate(s), and with only allowable expenses paid in agreement with per A-87 Attachment B D. Expenses properly posted to appropriate account
8. OMB Circular A-87 Cost Principles A-87- Attachment B step 41 - Travel costs a. General.Travel costs are allowable for expenses for transportation, lodging, subsistence, and related items incurred by employees traveling on official business. Such costs may be charged on an actual cost basis, on a per diem or mileage basis in lieu of actual costs incurred, or on a combination of the two, provided the method used is applied to an entire trip, andresults in charges consistent with those normally allowed in like circumstances in non-federally-sponsored activities.Notwithstanding the provisions of section 23, travel costs of officials covered by that section, when specifically related to Federal awards, are allowable with the prior approval of a grantor agency.
9. A-87(continued) Attachment B step 41 b. Lodging and subsistence. Costs incurred by employees and officers for travel, including costs of lodging, other subsistence, and incidental expenses, shall be considered reasonable and allowable only to the extent such costs do not exceed charges normally allowed by the governmental unit in its regular operations as a result of the governmental unit's policy.Note the policy comment - very important!
10. A-87 (continued) Attachment B step 41 c. Commercial air travel. Airfare costs in excess of the customary standard (coach or equivalent) airfare, are unallowable except when such accommodations would: require circuitous routing, require travel during unreasonable hours, excessively prolong travel, greatly increase the duration of the flight, result in increased cost that would offset transportation savings, or offer accommodations not reasonably adequate for the medical needs of the traveler. …
11. A-87 (continued) Attachment B step 41 step c (cont.) Where a governmental unit can reasonably demonstrate to the awarding agency either the non-availability of customary standard airfare or Federal Government contract airfare for individual trips or, on an overall basis, that it is the governmental unit's practice to make routine use of such airfare, specific determinations of non-availability will generally not be questioned by the Federal Government, unless a pattern of avoidance is detected. …
12. A-87 Attachment B step 41 step c (cont.) and d …However, in order for airfare costs in excess of the customary standard commercial airfare to be allowable, e.g., use of first-class airfare, the governmental unit must justify and document on a case-by-case basis the applicable condition(s) set forth above. d. Air travel by other than commercial carrier. Costs of travel via governmental unit-owned, -leased, or -chartered aircraft are unallowable to the extent they exceed the cost of allowable commercial air travel, as provided for in subsection c (above).
13. A-87 (continued) E. Direct Costs 1. General. Direct costs are those that can be identified specifically with a particular final cost objective. 2. Application. Typical direct costs chargeable to Federal awards are: d. Travel expenses incurred specifically to carry out the award. Note: Attachment B details allowable expenses for lodging (yes), meals(yes), entertainment(no), alcohol (no), etc.
14. We’ve covered …: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titledTravel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation Aspects of taxation of excess expense money (W2, 1040 & 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
15. IRS Publication 463 titled ‘Travel, Entertainment, Gift, and Car Expenses’ Three types of plans- Accountable, non-accountable and high-low Accountable Plans: To be an accountable plan, your employer's reimbursement or allowance arrangement must include all of the following rules. 1.Your expenses must have a business connection — that is, you must have paid or incurred deductible expenses while performing services as an employee of your employer.
16. IRS Publication 463 titled ‘Travel, Entertainment, Gift, and Car Expenses’ Accountable Plans (continued): 2.You must adequately account to your employer for these expenses within a reasonable period of time. 3.You must return any excess reimbursement or allowance within a reasonable period of time.
17. IRS Pub 463 (cont) The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time. See below for definitions: You receive an advance within 30 days of the time you have an expense.
18. IRS Pub 463 (cont) Definitions (continued): You adequately account for your expenses within 60 days after they were paid or incurred. You return any excess reimbursement within 120 days after the expense was paid or incurred. You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
19. Non-accountable Plans IRS Pub 463 (cont) A non-accountable plan is a reimbursement or expense allowance arrangement that does not meet one or more of the three rules listed earlier under Accountable Plans. In addition, even if your employer has an accountable plan, the following payments will be treated as being paid under a non-accountable plan: Excess reimbursements you fail to return to your employer, and Reimbursement of nondeductible expenses related to your employer's business. See Reimbursement of nondeductible expenses, earlier, under Accountable Plans.
20. Non-accountable Plans IRS Pub 463 (cont) An arrangement that repays you for business expenses by reducing the amount reported as your wages, salary, or other pay will be treated as a non-accountable plan.This is because you are entitled to receive the full amount of your pay whether or not you have any business expenses. If you are not sure if the reimbursement or expense allowance arrangement is an accountable or non-accountable plan, ask your employer. (Note: the ‘employer’ can call ITG for assistance- see reference at end of presentation)
21. IRS Pub 463 (cont) High-Low This is a simplified method of computing the federal per diem rate for travel within the continental United States It eliminates the need to keep a current list of the per diem rate in effect for each city in the continental United States
22. IRS Pub 463 (cont) Per Diem and Car Allowances as per the IRS website business mileage rate per IRS website— Beginning on Jan. 1, 2010, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 50 cents per mile for business miles driven
23. IRS Pub 463 (cont) If your employer reimburses you for your expenses using a per diem or a car allowance, you can generally use the allowance as proof for the amount of your expenses. A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all of the following conditions apply: Your employer reasonably limits payments of your expenses to those that are ordinary and necessary in the conduct of the trade or business.
24. IRS Pub 463 (cont) A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all of the following conditions apply (continued): The allowance is similar in form to and not more than the federal rate (defined later). You prove the time (dates), place, and business purpose of your expenses to your employer within a reasonable period of time.
25. IRS Pub 463 (cont) A per diem or car allowance satisfies the adequate accounting requirements for the amount of your expenses only if all of the following conditions apply (continued): If the IRS finds that an employer's travel allowance practices are not based on reasonably accurate estimates of travel costs (including recognition of cost differences in different areas for per diem amounts), you will not be considered to have accounted to your employer. In this case, you must be able to prove your expenses to the IRS. (Considered taxable income until proven otherwise.)
26. IRS Pub 463 (cont) The federal rate. The federal rate can be figured using any one of the following methods. For per diem amounts: The regular federal per diem rate. The high-low rate The standard meal allowance. M&IE meals and incidental expenses – standard meal allowance rather than the actual expenses-($46/day for unlisted locations)
27. IRS Pub 463 (cont) For per diem amounts, use the rate in effect for the area where you stop for sleep or rest. Employers can get Publication 1542, which gives the rates in the continental United States. Do not exceed federal rate NOTE: Per diem amounts which exceed the published per diem rate for a given area- will be considered taxable income and must be included in the employee’s W2. For car expenses: The standard mileage rate. A fixed and variable rate (FAVR).
28. We’ve covered …: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titledTravel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation Aspects of taxation of excess expense money (W2, 1040 & 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
29. Aspects of taxation of excess expense money (W2, 1040 & 2106) Tribal Policies and Procedures Policies must reflect the tribal council approved travel policies These policies and the resulting procedures must be current, reflect the federal laws, establish internal controls (checks and balances) Travel must be properly approved, incur no un-allowed expenses and be reconciled in a timely manner (policies and procedures must reflect these items) using the proper per diem rate(s)
30. Taxation Any receipt of money which looks like wages can be taxable. For the protection of tribal employees the following must occur- Return travel advance if trip is cancelled Travel must be reconciled after return (or else the total travel advance is considered taxable.) – some tribal policies provide for payroll deduction for payback Per diem equals the federal rate Do not reimburse non-allowed expenses
31. Taxation (cont) All non-reconciled travel advances are reported on the employee’s W2 and will be reconciled on the 1040 (thru form 2106)
32. We’ve covered …: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titledTravel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation Aspects of taxation of excess expense money (W2, 1040 & 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
33. Audit Related Issues: Audit Findings / Questioned Costs In the almost 10 years of auditing in Indian country I have seen the following: No approval of travel request No return of travel advance when travel cancelled Travel reconciliation issues: not performed incorrect not approved un-allowed expenses paid All could lead to questioned costs
34. We’ve covered …: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titledTravel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation Aspects of taxation of excess expense money (W2, 1040 & 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
35. Tribal travel policies agree with Federal travel requirements The federal requirements are clearly defined in A-87 and IRS Publication 463 These requirements must be placed in Tribal policies and procedures. If your policies need revising start today to assure clear and complete Tribal policies and procedures
37. We’ve covered …: The laws and how they pertain to travel, types of plans, IRS taxable income and audit issues: OMB Circular A-87 and IRS publication 463 titledTravel, Entertainment, Gift, and Car Expenses Accountable and Non-accountable plans Per diem Vehicle mileage rate Travel advances and timely reconciliation Aspects of taxation of excess expense money (W2, 1040 & 2106) Audit Related Issues- audit findings / questioned costs Tribal travel policies agree with requirements
38. Summary of requirements A. Travel request and advance properly approved B. Trip taken or advance returned C. Travel reconciliation submitted timely approved with correct per diem rate(s) with only allowable expenses paid in agreement with per A-87 Attachment B excess travel advance funds returned Note: Additional travel advance funds / higher than published per diem rates are treated like wages, and must be placed on the employee’s W2
40. Which federal laws apply to tribal travel? OMB Circular A87- Cost Principles IRS Pub 463 - Travel, Entertainment, Gift, and Car Expenses Tax forms W2, 1040 and 2106 All of the Above None of the Above
41. Which federal laws apply to tribal travel? OMB Circular A87- Cost Principles IRS Pub 463 - Travel, Entertainment, Gift, and Car Expenses Tax forms W2, 1040 and 2106 All of the Above None of the Above
43. Tribal travel policies & procedures must agree with federal laws A. True B. False Now for Indian Tribal Governments useful contact information
44. The Indian Tribal Government (ITG) program and the contacts are as follows: The office of Indian Tribal Governments at the Internal Revenue Service was established to help Indian tribes deal with their federal tax matters. See IRS website for contact information and the next slide for contact information
46. How to Contact ITG (cont) For questions regarding tax return account matters, tax deposits or filing requirements, please contact our Customer Account Services staff toll-free at 1-877-829-5500. For questions on any tribal tax matter, please e-mail us. Be sure to include your name, your phone number and your email address so that we can respond to your question.
47. A two day class is offered by Falmouth: Developing Tribal Travel Policies Visit www.falmouthinstitute.com Or call Falmouth Institute 1.800.992.4489 for further information
48. INSTRUCTOR INFORMATION Larry Monshor Midwest Professionals, P.L.L.C. Larry@midwestprofessionals.com Email is best- email any questions
