Posted by Michael E Mast, CPA
Traveling Outside State Lines Requires Staying in Line with the Travel Expense Reimbursement Rules.
Taft-Hartley plan trustees must stay up to date on the most recent rules and regulations regarding plan administration. One of the best places to be educated on the legislative framework governing collectively bargained benefit plans is at annual conferences. While these conferences provide great value to plan administrators and plan trustees, the expenses charged to the plan must meet the IRS’s guidelines as well as the plan’s travel expense policy.
The IRS website defines travel expenses as follows:
For tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
The IRS provides two methods for reimbursement – the actual method or standard allowance:
Actual Expense Method – Under the actual expense method, there must be records to evidence the actual cost of travel expenses. Only expenses actually related to the business travel may be reimbursed and only expenses incurred by the plan trustee are reimbursable. For example, if a plan trustee takes his spouse to a conference in Las Vegas, only the portion of the expenses incurred for the trustee is reimbursable. If a single occupancy hotel room is $150 and double occupancy is $200, the reimbursable amount is $150. However, there could be some hidden benefits if the rates for a single and a double room are the same, because the trustee would be entitled to full reimbursement of the room’s entire cost, even if the spouse uses it too.
Standard Meal Allowance – As an alternative to the actual expense method, the IRS standard rates can be used for meals and incidentals. The only documentation required under this method is proof of time, place, and business purpose of the travel. Incidental expenses are fees paid to porters, bag carriers, hotel staff, and staff on ships. Incidental expenses do not include expenses for laundry, cleaning and pressing of clothing, telephone calls, transportation between places of lodging or business and places where meals are taken, or the mailing cost of filing travel vouchers and paying employer-sponsored charge card billings. The reimbursement amount allowed by the IRS under the Standard Meal Allowance Method varies by destination. The allowed federal rates for Meals and Incidental Expenses (M&IE) by city can be found on the GSA website.
Travel for Departure and Return Days – Expense reimbursements for the departure and return days must be prorated under the standard meal allowance method by one of two methods.
- Method 1: claiming 75% of the standard meal allowance.
- Method 2: using any method that is consistently applied and that is in accordance with reasonable business practice, preferably documented in a travel expense policy for the plan.
Plan travel expenses are exempt from the prohibited transaction rules. If a reimbursement to a plan trustee is found to be unreasonable, the excess expenditure must be repaid and a penalty will be assessed by the Department of Labor. In addition to the correction of the unreasonable excess, a civil penalty amounting to 5% of the prohibited transaction will be assessed, which cannot be paid from plan assets. If a prohibited transaction is not corrected within 90 days of the agency’s final ruling, the civil penalty is increased to 100% of the amount involved.
If a plan expects to have its trustees regularly attend conferences or travel for plan business, we would recommend that the plan implement a travel policy. This travel policy will protect the plan from the risk of inappropriate plan expenses related to travel.
Complying with IRS and travel policy rules will keep trustees in line and out of trouble when traveling outside state lines.