Discussion:Per Diem for S-Corp. employee
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Discussion Forum Index --> Tax Questions --> Per Diem for S-Corp. employee
| 31 December 2006 | |
A single owner / employee of an S-copr. lives in Texas works in Virginia as a consultant. His corporation pays him the allowable perdiem $150/day for meals and lodging:
Can the S-corp deduct the full amount as expense? Will the per diem be added to the employee's W-2 as income? What IRS reg. rates and their treatment? Thanks and Happy New year. | |
Death&Taxes (talk|edits) said: | 1 January 2007 |
| Someone else will have to chime in, but Publication 463 Page 30 would seem to say the per diem method cannot be used because client owns more than 10% of the stock of the corporation. "If you are related to your employer, you must be able to prove your expenses' even if you have accounted for them to the employer and have returned any excess. | |
| 1 January 2007 | |
| CONUS rates are available for M&I, not lodging. $150 per day reimbursement would thus be a non-accountable plan includable in W-2 wages. Between 2% of AGI and Alt-Min is there a deduction at all?What is the true cost of not having an accountant? | |
| 1 January 2007 | |
| Substantiation is not required if the federal per diem rate is used for reimbursement according to Rev. Proc. 2006-41, Sec. 4.01. This includes lodging. I don't see a prohibition for use by any owner or shareholder. Also, when the per diem method is used, the rate must be divided into its lodging & MI&E components so that the 50% disapplowants for travel meals can be applied. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 1 January 2007 | |
| I read the Rev.2006-41, Sec. 4.01. But I am confused about the difference of opinion in this forum. Larry Hess seems to think it is ok for the corp. to deduct the per diem and exclude it from the w-2. I will follow this direction. I thank all for the input. | |
| 2 January 2007 | |
| My reading of the ยง274 regs and cases like Starr is that you need a true employer-employee relationship for CONUS lodging. I can't see a deduction specifically disallowed to the self-employed allowed to a sole shareholder. | |
| 2 January 2007 | |
| Rev. Proc 2006-41 Sec. 7.01 allows a self-employed person to use the per diem method. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
Death&Taxes (talk|edits) said: | 2 January 2007 |
| ".07. Related parties. Sections 4.01 and 5 of this revenue procedure do not apply if a payor and an employee are related within the meaning of 267(b), but for this purpose the percentage of ownership interest referred to in 267(b)(2) is 10 percent." This is Rev. Proc. 2006-41 and applies to the instant case of the S Corporation employee/100% shareholder.
I only see points related to Meals for the self-employed in 2006-41. I refer to points .08 and .09. This method has always been permissible. Publication 463 "If you are related to your employer, you must be able to prove your expenses to the IRS even if you have already adequately accounted to your employer and returned any excess reimbursement." | |
| 2 January 2007 | |
| Good going, D&T. I actually hadn't been aware of the related party limitation. I have to control my urge to shoot from the hip. I see what you're referring to in 7.08 & .09 and have always understood the use of the M&IE by self-employed people the same way as you. Yet I don't see any explicit prohibition for a SE person from using the lodging part of the per diem rate. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 2 January 2007 | |
| The citation the Tax Court used in Starr was Reg. 1.274-5T(c)(2)(iii). If you look at it logically, a long haul trucker isn't going to get per diem reimbursement for sleeping in the cab. | |
| 2 January 2007 | |
| Dennis: I don't see what you're referring to. The section in the temporary reg. is reserved and refers to the current final reg. which doesn't say what I was expecting. Are you talking about the requirement for substantiation for travel expenditures over $75? I hope you have the patience to lead me more carefully to the answer? -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 2 January 2007 | |
| OK I don't see it either. Might have been there when the Tax Court cited it, however if you read the case it's pretty clear where they see the potential for abuse. Can't send your brother on a business trip to Florida and charge per diem reimbursement while he's staying with your parents. | |
| 2 January 2007 | |
| Hi technically if the brother is a legit employee and the trip is also he can stay at the parents and get the per diem. And if he doesnt stay with the parents he can sleep in the car. bye | |
| 2 January 2007 | |
| I'm not a lawyer so I'm not professionally trained in how case law fits in the order of precedence of legal authorities. Maybe a lawyer lurking here will explain how much weight a Tax Court case carries given that the statutes and regulations don't address the issue we're discussing. Having said that, it seems interesting that IRS Publication 463 doesn't mention a limitation on self-employed people using the lodging per diem. The pubs. are really no authority at all, yet it's curious that the IRS wouldn't mention such an important point in the pub. which is their primary guidance to businesses on travel expense deductions. -- Larry Hess, CPA | Albuquerque, NM - Talk to me | |
| 2 January 2007 | |
| Wes: Reread the regs and consider "within the meaning of Sec. 267(b)". Larry: I picked Starr because of the multitude of citations given. They are uniform. | |
Death&Taxes (talk|edits) said: | 2 January 2007 |
| Larry: This is Reg. 1.274-5"(j) Authority for optional methods of computing certain expenses.
(1) Meal expenses while traveling away from home. The Commissioner may establish a method under which a taxpayer may use a specified amount or amounts for meals while traveling away from home in lieu of substantiating the actual cost of meals. The taxpayer will not be relieved of the requirement to substantiate the actual cost of other travel expenses as well as the time, place, and business purpose of the travel. See paragraphs (b)(2) and (c) of this section." In the Revenue Procedure, they are mentioning it by omission, or by noting that it is covered by this Regulation. In other parts they specifically go out of their way to allow employers use of a per diem method for lodging, means and incidentals, with the exception of those meeting the definition of Sec. 267(b). Your reasoning would permit the owner of a business to use Conus rates, while if his wife or son traveled with him on business they would have to account for the expenses. | |
| 2 January 2007 | |
| D&T: I understand what you're saying. I'm going to have to stop now and reflect on this for a while. In the meantime maybe others will chime in with other technical points of view. -- Larry Hess, CPA, Albuquerque, NM - Talk to me | |
Death&Taxes (talk|edits) said: | 2 January 2007 |
| Larry: it's discussion like this that make this such a great place. Originally my reasoning had to do with the same logic used for Health Insurance and Shareholders and was just as surprised as you to find the reasoning used was related party. I learned a lot that either I did not know or took for granted. | |
| 2 January 2007 | |
| Hi Dennis I stand corrected I relied on a Surgent seminar book which did not mention any related party restrictions as noted when I did read RP 2006-41. Never did like that brother. bye | |
| 25 June 2007 | |
| Its well past tax season, but the same question has just come up. I have a over the road trucker team that are the shareholders of an S-corp. Are they able to take meal per diem? I have tried to read all, but am still not sure.Eapat 09:08, 25 June 2007 (CDT) | |
| 25 June 2007 | |
| There have been many contributions to this thread, but nothing definitive. I have a client that is a Single Member LLC taxed as an S Corp. The Member is the sole employee, who is a consultant. The Company's services (and thus the employee)are required to travel away from home. In the past, I have used the full CONUS Per Diem Rates. I'd like to hear more about possible limitations for related parties. | |
| 26 June 2007 | |
| Seems like the related party exclusion (6.07 of the aforementioned ruling) does not permit using conus per diem to substantiate lodging expenses.
This also applies to self-employed persons. They still have to substantiate the actual lodging costs with that same substantation allowing them to take the per diem M&IE. | |
Death&Taxes (talk|edits) said: | 26 June 2007 |
| I see nothing above that would change my mind about lodging and the per diem method. I do not believe it can be done. | |
| 28 June 2007 | |
| I agree that lodging has to be substantiated, but what about meals and incidentals??? | |
| 4 January 2008 | |
| I have an LLC (filing as an S Corp) client that leases his truck to another company. He hauls loads for the company that he leases his truck to. My question is for some clarity about Meals & IE for this client. Having read some of the previous entries, I'm still uncertain about the correct answer.
Question is: Can this client be reimbursed a Per Diem rate for his Meals & IE for a month's trips, by the S Corp. He is a 50% owner. Or can he only be reimbursed by the S Corp for his actual meal expenses because he is a greater than 10% shareholder? My thought initially that he could pay from his meals out of his own pocket, then report to the employer (S Corp), how many days at the per diem rate, and have the S Corp reimburse him for the Per Diem rates (at 80% for 2008) and get an expense deduction for the Per Diem rates paid to the S Corp employee. (And by the way, which Per Diem rates would be used for this trucker, if applicable.) For those knowledgable, please provide me some guidance about this matter. | |
