Deducting expenses for sporting events under an accountable plan.

• Author: Holets, David J.

Most employers take advantage of the accountable plan rules to deduct travel and entertainment expenses. Amounts received by an employee under an accountable plan are deductible by the employer without any required inclusion in the employee's income. However, employers need to be aware of some unique rules for sporting and other live entertainment events.

Accountable Plans: General Rules

Regs. Sec. 1.62-2(c)(2) requires expenses paid through an accountable plan to meet three tests. First, any advances, allowances, or reimbursements under the plan must be paid or incurred by the employee for an expense in connection with the performance of services as an employee for his or her employer. These expenses must be otherwise allowable business expenses, and the business may be subject to further limitations on deducting them. Sporting event tickets generally are considered an entertainment expense subject to the 50% limit of Sec. 274(n).

Second, employees must provide the employer with substantiation of the expense within a reasonable amount of time. Generally, an employee should submit documents such as a copy of a receipt or similar proof of payment, indicating the date and time of the expenditure and a description of the business purpose of the expenditure.

Third, any reimbursements in excess of substantiated business expenses must be returned to the employer within a reasonable amount of time.

The definition of a reasonable period of time under both the second and third tests is based on each employers facts and circumstances. However, Regs. Sec. 1.62-2(g)(2) includes two safe harbors employers may rely on when establishing an employee reimbursement policy. The first safe harbor is the fixed-date method. Under this method, advances must be made within 30 days of the expense's being paid or incurred, expenses must be substantiated within 60 days after being paid or incurred, and unsubstantiated amounts must be returned within 120 days of the expense's being paid or incurred. The second safe harbor is the periodic-statement method. Under this method, the employer is required to provide periodic statements to its employees (no less frequently than quarterly) that detail the amount of unsubstantiated business expenses. This statement must require employees to either submit substantiation or repay the expense within 120 days.

Sporting Events

Amounts paid to an employee under an accountable plan for tickets to a sporting event must meet several...