The new rules for expense reporting and reimbursement. (includes related article)

The New Rules for Expense Reporting and Reimbursement

IRS has implemented new policies for business expenses. Here's what you have to know to comply.

Slightly more than a year ago, the Internal Revenue Service (IRS) issued a series of new procedures governing the substantiation of employee business expenses.

As a result, associations now have to make minor but important changes to their written expense reimbursement plans. Areas covered include advances, substantiation, noncash fringe benefits, and per diem rates.

IRS claims the new rules are "clear, easy to apply, and consistent with the way taxpayers do business." That's probably true, but only in a relative sense.

For the better part of a decade, the rules governing substantiation of employee business expenses have been undergoing change. So much has changed so often that the rules--even before this latest set of changes--are not well understood by many employers, much less by employees (see sidebar, "Longstanding Confusion").

Many employees tend to regard the finance and accounting personnel who administer their employer's expense reimbursement policy as officious nuisances. Further, they may view the new policy as bureaucratic and producing false economy because the hidden cost likely exceeds any budget savings.

What they fail to understand is that the policy seems that way because IRS wrote it, practically speaking.

Primary purpose

In fact, in most associations, the primary reason for the expense reimbursement plan is not to save money or to document the association's tax deductions--the association probably doesn't pay income taxes. The primary reason is to protect employees themselves from having to include their expense reimbursements in income on their own tax returns.

Many associations could save themselves administrative hassle and employee friction by simply explaining this fundamental fact to their staff and by making it clear that it's not employer versus employee in all this, but both together versus IRS.

The point to be made …