The Treasury Department and the IRS have issued guidance concerning the application
of the "accountable plan" rules to employee-owned tools.
In a number of industries, employees provide their own tools to perform services
and are reimbursed for the cost of the tools by their employers. Previously,
the Treasury and the IRS clarified that such reimbursements must satisfy the
accountable plan rules--expenses reimbursed under an accountable plan are excluded
from income and wages; expenses that are reimbursed under a non-accountable
plan are taxable.
The new revenue ruling clarifies that employers using accountable plans to
reimburse employees for the cost of providing tools must substantiate the expenses
reimbursed and, to the extent the plan provides payments before expenses are
incurred, the plan requires the employee to return amounts in excess of the
substantiated expenses. In particular, the guidance clarifies that an accountable
plan may not use estimates to substantiate the amount of the expenses.
In addition to the guidance, the Treasury and the IRS are issuing a notice
regarding criteria for considering proposals involving employer reimbursements
of equipment expenses for the Service's Industry Issue Resolution (IIR) program.
The notice identifies factors that would be considered in determining that the
existing accountable plan rules are unworkable for an industry and thus relief
may be appropriate. The notice also states that the mere cost of collecting
records, substantiating expenses, and reconciling the expenses against reimbursements
would not constitute grounds for relief from the requirements of the accountable