Per Diem Update - December 11, 2007

On November 27, 2007, the IRS issued Revenue Procedure 2007-70 updating the standard mileage rate to use in 2008 in computing the deductible costs of operating a personal vehicle for business purposes. This update further amplifies the importance of Revenue Ruling 2006-56. In Rev. Ruling 2006-56, the IRS applied the per diem and accountable plan rules outline in Rev. Proc. 2007-63, and deemed what constitutes a long-haul trucking company’s per diem reimbursement plan as abusive under the accountable plan rules. Rev. Proc 2007-70 specifically mentions Rev. Ruling 2006-56 as guidance for treatment of excess mileage reimbursements made under a deemed abusive accountable plan.

Rev. Proc. 2007-63 addresses excess per diem payments that are not tested along with what happens when they are tested by the IRS and it is determined that excess per diem was paid and was not reimbursed by the driver back to the company or added back to the drivers W-2 income on at least a monthly basis. Rev. Proc. 2007-63 addresses the circumstances where a pattern of abuse may exist, and the penalties that may apply if the abuse is so determined. The result would be a total disallowance of all per diem payments as a reimbursement cost, and require all per diem payments to be treated as W-2 income. An incorrect reporting of a driver’s W-2 would result in the drivers having to file amended returns which would highly impact driver turnover and cost the company a significant amount of money in payroll taxes, penalties, interest and increases in worker’s compensation premium due to the increased wages.

The IRS has stated that they will begin strictly enforcing the accountable plan rules for plan years beginning on or after January 1, 2007. For further discussion of Bell recommended processes, contact Richard Bell at richard.bell@bellandcompany.net or Jeff Lovelady at jeff.lovelady@bellandcompany.net or by phone at 501-653-9700. To obtain a copy of the Rev. Procedures 2007-63 or 2007-70 by email or fax, contact Deanna Lovelady at deanna.lovelady@bellandcompany.net.