Accountable Plan Compliance

1. Accountable Plan Compliance Session #25 Terry Miller

2. Presenter Bio • Terry Miller brings years of training and consulting experience in the nonprofit sector across a broad range of organizations. His passion is making information accessible to nonprofit managers, boards and advisors. He received his B.A. from Antioch College in Yellow Springs, Ohio in 1977, and his M.B.A. from the University of Portland in 1984. Terry consults with nonprofits and has a primary engagement with River Network, a Portland, Oregon-based environmental organization working to strengthen local watershed groups nationally. www.TerryMiller.bizTerry@TerryMiller.biz 62 Rudden Ave, San Francisco, California, 94112-2540 voice: 415-333-6320 fax: 415-333-6309

3. Course Outline • Overview, Practical view, Technical Definition • Exploring the Definitions • Per Diems & Allowances • Reporting • Risks of getting it wrong • Automatic Excess Benefit Transactions • Unreported Taxable Compensation / Employment Tax • Sources of Info

4. Accountable Plans Overview About reimbursement of Employees and Volunteers NOT about reimbursement of Consultants Basics: payments to employees are taxableunless Nontaxable Employee Benefit, or Paid under an Accountable Plan Really “accountable procedure” no plan document is necessary to qualify having a written plan is helpful: control, clarity, facts & circumstances Same rules for Taxable & Exempt Org employers EXCEPTION: Automatic Excess Benefit Transaction rules

5. Accountable Plans: Practical View Mostly common sense / ordinary business practice Hence, most don’t know what it means, they’re already doing it Wrinkle 1: payment only AP if would otherwise be deductible by employee (if itemizing) as Employee Business Related Expense will discuss more Wrinkle 2: lavish / excessive vs. discretionary business decision line seems fuzzy Remember Charitable Trust considerations – public benefit

6. Accountable Plans: Technical View Three-prong definition [Reg 1.62-2(c)(2)] Business connection, and Adequately accounted for in reasonable period, and Any excess returned within reasonable period If Employer pays in a NON-AP fashion, employee may only use itemized deduction; not possible to convert to AP from “below”

7. Exploring the Definitions Business purpose Adequately accounted for in a reasonable period of time Excess returned in a reasonable period of time

8. Actual Reimbursements v. Per Diems & Allowances Hi/Lo vs. Standard Rates Full Per Diem vs. M&IE Employer Per Diem vs. Federal Rates Actual Expenses vs. Per Diem Allowances & timely “true-up”

9. Reporting: Which / When / Why Form W-2, Box 1 & Box 12 Form 1099-MISC Form 990 Form 2106 Form 4720

10. The risks of getting it wrong Employment Taxes on Unreported Taxable Compensation Two rates Automatic Excess Benefit Transactions

11. Automatic Excess Benefit Transactions History of Section 4958 Overview of Section 4958 The Notion of Automatic Excess Benefit Transactions How to avoid? Contemporaneous written substantiation of compensatory intent Timely reporting of benefits exploring Examples

12. Sources of Information Reg 1.62(c) Reg 53.4958-4 Employer Tax Guide, Pubs 15, 15-A,15-B Employees, Wages, Fringe Benefits Pub 463 Travel, Entertainment, Gift, and Car Expenses, Chapter 6 “How to Report” Pub 535 Business Expenses, Chapter 11: “Other Expenses; Reimbursement of Travel, Meals, and Entertainment” IRS 2004 EO CPE Text: “Automatic Excess Benefit Transactions Under IRC 4958” Brauer & Henzke IRS 2003 EO CPE Text: Employment Tax Update – Review of Current Litigation, Kawecki & Henzke; Pages D-33 – D-36 “Accountable Plan – Recent Case Law”

13. Thank you for your time!In addition to the AICPA website, this PowerPoint and all cited materials are online at: www.TerryMiller.biz/AICPA-NFP12(this is an “undocumented” page, not linked-to from elsewhere on my site).If there is any other source document or prior workshop materials I referred to, I am happy to email it to you.