Reimbursed Entertainment Expenses, 46502-46504 [2013-18559]

Download as PDF 46502 § 416.913 Federal Register / Vol. 78, No. 148 / Thursday, August 1, 2013 / Rules and Regulations [Amended] 9. Amend § 416.913(a)(2) by removing the words ‘‘mental retardation’’ and adding in their place ‘‘intellectual disability’’. ■ [FR Doc. 2013–18552 Filed 7–31–13; 8:45 am] BILLING CODE 4191–02–P responding to the notice of proposed rulemaking was received. No public hearing was requested or held. After consideration of the comment, the regulations are adopted without substantive change by this Treasury decision. Summary of Comment and Explanation of Provisions DEPARTMENT OF THE TREASURY 1. Reimbursement Arrangements of Payors Internal Revenue Service 26 CFR Part 1 [TD 9625] RIN 1545–BI83 Reimbursed Entertainment Expenses Internal Revenue Service (IRS), Treasury. ACTION: Final regulations. AGENCY: This document contains final regulations regarding the exception to the deduction limitations on certain expenditures paid or incurred under reimbursement or other expense allowance arrangements. These final regulations affect taxpayers that pay or receive advances, allowances, or reimbursements under reimbursement or other expense allowance arrangements and clarify the rules for these arrangements. DATES: Effective Date: These regulations are effective on August 1, 2013. Applicability Date: For date of applicability, see § 1.274–2(f)(2)(iv)(F). FOR FURTHER INFORMATION CONTACT: Patrick Clinton, (202) 622–4930 (not a toll free number). SUPPLEMENTARY INFORMATION: SUMMARY: mstockstill on DSK4VPTVN1PROD with RULES Background This document contains final regulations that amend the Income Tax Regulations (26 CFR part 1) under section 274(e)(3) of the Internal Revenue Code (Code). The regulations provide rules for the exception under section 274(e)(3) to the section 274(a) and (n) deduction limitations for certain expenditures paid or incurred under reimbursement or other expense allowance arrangements. The final regulations clarify the definition of reimbursement or other expense allowance arrangements for purposes of section 274(a) and (n) and how the deduction limitations apply to reimbursement arrangements between more than two parties. On August 1, 2012, a notice of proposed rulemaking (REG–137589–07) was published in the Federal Register (77 FR 45520). One written comment VerDate Mar<15>2010 16:08 Jul 31, 2013 Jkt 229001 The proposed regulations would amend regulations that apply the section 274(e)(3) exception to reimbursement and other expense allowance arrangements involving employees. The proposed regulations clarify that these rules apply to reimbursement or other expense allowance arrangements between payors and employees. Under the proposed regulations, a payor may be an employer, an agent of the employer, or a third party. The commentator suggested that the change in terminology is confusing and that the final regulations either should retain the term employer or further define the terms. The regulations use the term payor to clarify that the rules relating to reimbursement and other expense allowance arrangements with employees do not require determining who is the common law employer. The rules require, instead, identifying the party that bears the expense. Thus, the regulations are not limited to employers but encompass any party that reimburses an employee’s expenses under a reimbursement or other expense allowance arrangement. Accordingly, the final regulations do not adopt this comment. 2. Arrangements Between Independent Contractors and Clients The proposed regulations provide that, for a reimbursement or other expense allowance arrangement involving persons that are not employees (an independent contractor and a client or customer), the parties may expressly identify the party subject to the section 274(a) and (n) limitations. If the agreement does not specify a party, the limitations apply to the client if the independent contractor accounts to the client for (substantiates) the expenses, and to the independent contractor if the independent contractor does not account to the client. The commentator suggested that the language of section 274(e)(3) does not permit the parties to choose which party is subject to the limitations. PO 00000 Frm 00012 Fmt 4700 Sfmt 4700 Section 274(e)(3)(B) provides that taxpayers may identify the party subject to the section 274(a) and (n) limitations by accounting or not accounting for expenses and therefore contemplates identification of the party subject to the limitations. The final regulations provide a rule that gives taxpayers the flexibility contemplated under section 274(e) and is easily administrable for the IRS. Accordingly, the final regulations do not adopt this comment. Effective/Applicability Date These regulations apply to expenses paid or incurred in taxable years beginning after August 1, 2013. Taxpayers may apply these regulations to expenses paid or incurred in taxable years beginning on or before August 1, 2013 for which the period of limitation on credit or refund under section 6511 has not expired. Special Analyses It has been determined that this Treasury decision is not a significant regulatory action as defined in Executive Order 12866, as supplemented by Executive Order 13563. Therefore, a regulatory assessment is not required. It also has been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations and, because the regulations do not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section 7805(f) of the Code, the notice of proposed rulemaking that preceded these final regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business, and no comments were received. Drafting Information The principal author of these final regulations is Patrick Clinton of the Office of Associate Chief Counsel (Income Tax & Accounting). However, other personnel from the IRS and Treasury Department participated in their development. List of Subjects in 26 CFR Part 1 Income taxes, Reporting and recordkeeping requirements. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: E:\FR\FM\01AUR1.SGM 01AUR1 Federal Register / Vol. 78, No. 148 / Thursday, August 1, 2013 / Rules and Regulations PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by adding an entry in numerical order to read as follows: ■ Authority: 26 U.S.C. 7805 * * * Section 1.274–2 also issued under 26 U.S.C. 274(o). * * * Par. 2. Section 1.274–2 is amended by revising paragraph (f)(2)(iv) to read as follows: ■ § 1.274–2 Disallowance of deductions for certain expenses for entertainment, amusement, recreation, or travel. mstockstill on DSK4VPTVN1PROD with RULES * * * * * (f) * * * (2) * * * (iv) Reimbursed entertainment, food, or beverage expenses—(A) Introduction. In the case of any expenditure for entertainment, amusement, recreation, food, or beverages made by one person in performing services for another person (whether or not the other person is an employer) under a reimbursement or other expense allowance arrangement, the limitations on deductions in paragraphs (a) through (e) of this section and section 274(n)(1) apply either to the person who makes the expenditure or to the person who actually bears the expense, but not to both. If an expenditure of a type described in this paragraph (f)(2)(iv) properly constitutes a dividend paid to a shareholder, unreasonable compensation paid to an employee, a personal expense, or other nondeductible expense, nothing in this exception prevents disallowance of the expenditure to the taxpayer under other provisions of the Code. (B) Reimbursement arrangements involving employees. In the case of an employee’s expenditure for entertainment, amusement, recreation, food, or beverages in performing services as an employee under a reimbursement or other expense allowance arrangement with a payor (the employer, its agent, or a third party), the limitations on deductions in paragraphs (a) through (e) of this section and section 274(n)(1) apply— (1) To the employee to the extent the employer treats the reimbursement or other payment of the expense on the employer’s income tax return as originally filed as compensation paid to the employee and as wages to the employee for purposes of withholding under chapter 24 (relating to collection of income tax at source on wages); or (2) To the payor to the extent the reimbursement or other payment of the expense is not treated as compensation and wages paid to the employee in the manner provided in paragraph VerDate Mar<15>2010 16:08 Jul 31, 2013 Jkt 229001 (f)(2)(iv)(B)(1) of this section (however, see paragraph (f)(2)(iv)(C) of this section if the payor receives a payment from a third party that may be treated as a reimbursement arrangement under that paragraph). (C) Reimbursement arrangements involving persons that are not employees. In the case of an expense for entertainment, amusement, recreation, food, or beverages of a person who is not an employee (referred to as an independent contractor) in performing services for another person (a client or customer) under a reimbursement or other expense allowance arrangement with the person, the limitations on deductions in paragraphs (a) through (e) of this section and section 274(n)(1) apply to the party expressly identified in an agreement between the parties as subject to the limitations. If an agreement between the parties does not expressly identify the party subject to the limitations, the limitations apply— (1) To the independent contractor (which may be a payor described in paragraph (f)(2)(iv)(B) of this section) to the extent the independent contractor does not account to the client or customer within the meaning of section 274(d) and the associated regulations; or (2) To the client or customer if the independent contractor accounts to the client or customer within the meaning of section 274(d) and the associated regulations. See also § 1.274–5. (D) Reimbursement or other expense allowance arrangement. The term reimbursement or other expense allowance arrangement means— (1) For purposes of paragraph (f)(2)(iv)(B) of this section, an arrangement under which an employee receives an advance, allowance, or reimbursement from a payor (the employer, its agent, or a third party) for expenses the employee pays or incurs; and (2) For purposes of paragraph (f)(2)(iv)(C) of this section, an arrangement under which an independent contractor receives an advance, allowance, or reimbursement from a client or customer for expenses the independent contractor pays or incurs if either— (a) A written agreement between the parties expressly states that the client or customer will reimburse the independent contractor for expenses that are subject to the limitations on deductions in paragraphs (a) through (e) of this section and section 274(n)(1); or (b) A written agreement between the parties expressly identifies the party subject to the limitations. PO 00000 Frm 00013 Fmt 4700 Sfmt 4700 46503 (E) Examples. The following examples illustrate the application of this paragraph (f)(2)(iv). Example 1. (i) Y, an employee, performs services under an arrangement in which L, an employee leasing company, pays Y a per diem allowance of $10x for each day that Y performs services for L’s client, C, while traveling away from home. The per diem allowance is a reimbursement of travel expenses for food and beverages that Y pays in performing services as an employee. L enters into a written agreement with C under which C agrees to reimburse L for any substantiated reimbursements for travel expenses, including meals, that L pays to Y. The agreement does not expressly identify the party that is subject to the deduction limitations. Y performs services for C while traveling away from home for 10 days and provides L with substantiation that satisfies the requirements of section 274(d) of $100x of meal expenses incurred by Y while traveling away from home. L pays Y $100x to reimburse those expenses pursuant to their arrangement. L delivers a copy of Y’s substantiation to C. C pays L $300x, which includes $200x compensation for services and $100x as reimbursement of L’s payment of Y’s travel expenses for meals. Neither L nor C treats the $100x paid to Y as compensation or wages. (ii) Under paragraph (f)(2)(iv)(D)(1) of this section, Y and L have established a reimbursement or other expense allowance arrangement for purposes of paragraph (f)(2)(iv)(B) of this section. Because the reimbursement payment is not treated as compensation and wages paid to Y, under section 274(e)(3)(A) and paragraph (f)(2)(iv)(B)(1) of this section, Y is not subject to the section 274 deduction limitations. Instead, under paragraph (f)(2)(iv)(B)(2) of this section, L, the payor, is subject to the section 274 deduction limitations unless L can meet the requirements of section 274(e)(3)(B) and paragraph (f)(2)(iv)(C) of this section. (iii) Because the agreement between L and C expressly states that C will reimburse L for substantiated reimbursements for travel expenses that L pays to Y, under paragraph (f)(2)(iv)(D)(2)(a) of this section, L and C have established a reimbursement or other expense allowance arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. L accounts to C for C’s reimbursement in the manner required by section 274(d) by delivering to C a copy of the substantiation L received from Y. Therefore, under section 274(e)(3)(B) and paragraph (f)(2)(iv)(C)(2) of this section, C and not L is subject to the section 274 deduction limitations. Example 2. (i) The facts are the same as in Example 1 except that, under the arrangements between Y and L and between L and C, Y provides the substantiation of the expenses directly to C, and C pays the per diem directly to Y. (ii) Under paragraph (f)(2)(iv)(D)(1) of this section, Y and C have established a reimbursement or other expense allowance arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. Because Y substantiates directly to C and the E:\FR\FM\01AUR1.SGM 01AUR1 46504 Federal Register / Vol. 78, No. 148 / Thursday, August 1, 2013 / Rules and Regulations reimbursement payment was not treated as compensation and wages paid to Y, under section 274(e)(3)(A) and paragraph (f)(2)(iv)(C)(1) of this section Y is not subject to the section 274 deduction limitations. Under paragraph (f)(2)(iv)(C)(2) of this section, C, the payor, is subject to the section 274 deduction limitations. Example 3. (i) The facts are the same as in Example 1, except that the written agreement between L and C expressly provides that the limitations of this section will apply to C. (ii) Under paragraph (f)(2)(iv)(D)(2)(b) of this section, L and C have established a reimbursement or other expense allowance arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. Because the agreement provides that the 274 deduction limitations apply to C, under section 274(e)(3)(B) and paragraph (f)(2)(iv)(C) of this section, C and not L is subject to the section 274 deduction limitations. Example 4. (i) The facts are the same as in Example 1, except that the agreement between L and C does not provide that C will reimburse L for travel expenses. (ii) The arrangement between L and C is not a reimbursement or other expense allowance arrangement within the meaning of section 274(e)(3)(B) and paragraph (f)(2)(iv)(D)(2) of this section. Therefore, even though L accounts to C for the expenses, L is subject to the section 274 deduction limitations. (F) Effective/applicability date. This paragraph (f)(2)(iv) applies to expenses paid or incurred in taxable years beginning after August 1, 2013. * * * * * ■ Par. 3. Section 1.274–8 is revised to read as follows: § 1.274–8 Effective/applicability date. Except as provided in §§ 1.274–2(a), 1.274–2(e), 1.274–2(f)(2)(iv)(F), and 1.274–5, §§ 1.274–1 through 1.274–7 apply to taxable years ending after December 31, 1962. Beth Tucker, Deputy Commissioner for Services and Enforcement. Approved: June 25, 2013. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2013–18559 Filed 7–31–13; 8:45 am] mstockstill on DSK4VPTVN1PROD with RULES BILLING CODE 4830–01–P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA–R09–OAR–2010–0062; FRL–9837–5] Approval and Promulgation of Implementation Plans, State of California, San Joaquin Valley Unified Air Pollution Control District, New Source Review Environmental Protection Agency (EPA). ACTION: Final rule. AGENCY: EPA is taking final action to correct the May 2004 approval of a version of the New Source Review (NSR) rules for the San Joaquin Valley Unified Air Pollution Control District portion of the California State Implementation Plan, consistent with the relevant provisions of state law. Specifically, EPA is taking final action to correct the May 2004 approval by limiting the approval, as it relates to agricultural sources, to apply the permitting requirements only to such sources with potential emissions at or above a major source applicability threshold and to such sources with actual emissions at or above 50 percent of a major source applicability threshold and to apply the emission offset requirement only to major agricultural sources and major modifications of such sources. DATES: This rule is effective on September 3, 2013. ADDRESSES: EPA has established docket number EPA–R09–OAR–2010–0062 for this action. The index to the docket is available electronically at www.regulations.gov and in hard copy at EPA Region IX, 75 Hawthorne Street, San Francisco, California. While all documents in the docket are listed in the index, some information may be publicly available only at the hard copy location (e.g., copyrighted material), and some may not be publicly available in either location (e.g., CBI). To inspect the hard copy materials, please schedule an appointment during normal business hours with the contact listed in the FOR FURTHER INFORMATION CONTACT section. FOR FURTHER INFORMATION CONTACT: Laura Yannayon, Permits Office (AIR– 3), U.S. Environmental Protection Agency, Region IX, (415) 972–3534, yannayon.laura@epa.gov. SUMMARY: SUPPLEMENTARY INFORMATION: Throughout this document, ‘‘we,’’ ‘‘us’’ and ‘‘our’’ refer to EPA. Table of Contents I. Background for Today’s Final Action VerDate Mar<15>2010 16:08 Jul 31, 2013 Jkt 229001 PO 00000 Frm 00014 Fmt 4700 Sfmt 4700 A. Actions Proposed in January 29, 2010 Proposed Rule B. Background, Authority and Rationale for Proposed Error Correction C. Letters from the California Attorney General’s Office II. Public Comments and EPA’s Responses III. Final Action IV. Statutory and Executive Order Reviews I. Background for Today’s Final Action A. Actions Proposed in January 29, 2010 Proposed Rule On January 29, 2010 (75 FR 4745), under the Clean Air Act (CAA or ‘‘Act’’), we proposed three actions in connection with the permitting rules for the San Joaquin Valley Unified Air Pollution Control District (‘‘District’’) portion of the California State Implementation Plan (SIP).1 Herein, we refer to our January 29, 2010 proposed rule as the ‘‘proposed rule.’’ As discussed further below, we have already finalized the second and third actions included in our proposed rule, and are taking action today to finalize the first action. First, in our proposed rule, we proposed to correct an error in our May 2004 final rule approving Rules 2020 (‘‘Exemptions’’) and 2201 (‘‘New and Modified Stationary Source Review Rule’’), as amended by the District in December 2002, that establish the requirements and exemptions for review of new or modified stationary sources (‘‘new source review’’ or ‘‘NSR’’). Herein, we refer to District Rules 2020 and 2201 as the ‘‘District’s NSR rules.’’ In our proposed rule, we explained how our error arose from the failure, in light of information available at the time, to recognize that the District did not have the authority under state law to implement the District’s NSR rules with respect to permitting of minor agricultural sources with actual emissions less than 50% of the applicable ‘‘major source’’ thresholds and with respect to the imposition of emissions offset requirements for minor agricultural sources. In addition to the error correction described above, our January 2010 proposed rule also proposed two other actions: (a) a limited approval and limited disapproval of the District’s NSR rules, as further amended in 2007 and 1 The San Joaquin Valley includes all of San Joaquin, Stanislaus, Merced, Madera, Fresno, Kings and Tulare counties, and the western half of Kern County, in the State of California. The San Joaquin Valley is designated as a nonattainment area for the 1997 and 2008 8-hour ozone national ambient air quality standards (NAAQS) and the 1997 (annual) and 2006 (24-hour) fine particulate matter (PM2.5) NAAQS and is designated as attainment or unclassifiable for the other NAAQS. See 40 CFR 81.305. The area is further classified as ‘‘extreme’’ for the now-revoked 1-hour ozone NAAQS, and the 1997 and 2008 8-hour ozone NAAQS. E:\FR\FM\01AUR1.SGM 01AUR1

Agencies

[Federal Register Volume 78, Number 148 (Thursday, August 1, 2013)]
[Rules and Regulations]
[Pages 46502-46504]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-18559]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9625]
RIN 1545-BI83


Reimbursed Entertainment Expenses

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations regarding the 
exception to the deduction limitations on certain expenditures paid or 
incurred under reimbursement or other expense allowance arrangements. 
These final regulations affect taxpayers that pay or receive advances, 
allowances, or reimbursements under reimbursement or other expense 
allowance arrangements and clarify the rules for these arrangements.

DATES: Effective Date: These regulations are effective on August 1, 
2013.
    Applicability Date: For date of applicability, see Sec.  1.274-
2(f)(2)(iv)(F).

FOR FURTHER INFORMATION CONTACT: Patrick Clinton, (202) 622-4930 (not a 
toll free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final regulations that amend the Income Tax 
Regulations (26 CFR part 1) under section 274(e)(3) of the Internal 
Revenue Code (Code). The regulations provide rules for the exception 
under section 274(e)(3) to the section 274(a) and (n) deduction 
limitations for certain expenditures paid or incurred under 
reimbursement or other expense allowance arrangements. The final 
regulations clarify the definition of reimbursement or other expense 
allowance arrangements for purposes of section 274(a) and (n) and how 
the deduction limitations apply to reimbursement arrangements between 
more than two parties.
    On August 1, 2012, a notice of proposed rulemaking (REG-137589-07) 
was published in the Federal Register (77 FR 45520). One written 
comment responding to the notice of proposed rulemaking was received. 
No public hearing was requested or held. After consideration of the 
comment, the regulations are adopted without substantive change by this 
Treasury decision.

Summary of Comment and Explanation of Provisions

1. Reimbursement Arrangements of Payors

    The proposed regulations would amend regulations that apply the 
section 274(e)(3) exception to reimbursement and other expense 
allowance arrangements involving employees. The proposed regulations 
clarify that these rules apply to reimbursement or other expense 
allowance arrangements between payors and employees. Under the proposed 
regulations, a payor may be an employer, an agent of the employer, or a 
third party.
    The commentator suggested that the change in terminology is 
confusing and that the final regulations either should retain the term 
employer or further define the terms.
    The regulations use the term payor to clarify that the rules 
relating to reimbursement and other expense allowance arrangements with 
employees do not require determining who is the common law employer. 
The rules require, instead, identifying the party that bears the 
expense. Thus, the regulations are not limited to employers but 
encompass any party that reimburses an employee's expenses under a 
reimbursement or other expense allowance arrangement. Accordingly, the 
final regulations do not adopt this comment.

2. Arrangements Between Independent Contractors and Clients

    The proposed regulations provide that, for a reimbursement or other 
expense allowance arrangement involving persons that are not employees 
(an independent contractor and a client or customer), the parties may 
expressly identify the party subject to the section 274(a) and (n) 
limitations. If the agreement does not specify a party, the limitations 
apply to the client if the independent contractor accounts to the 
client for (substantiates) the expenses, and to the independent 
contractor if the independent contractor does not account to the 
client. The commentator suggested that the language of section 
274(e)(3) does not permit the parties to choose which party is subject 
to the limitations.
    Section 274(e)(3)(B) provides that taxpayers may identify the party 
subject to the section 274(a) and (n) limitations by accounting or not 
accounting for expenses and therefore contemplates identification of 
the party subject to the limitations. The final regulations provide a 
rule that gives taxpayers the flexibility contemplated under section 
274(e) and is easily administrable for the IRS. Accordingly, the final 
regulations do not adopt this comment.

Effective/Applicability Date

    These regulations apply to expenses paid or incurred in taxable 
years beginning after August 1, 2013. Taxpayers may apply these 
regulations to expenses paid or incurred in taxable years beginning on 
or before August 1, 2013 for which the period of limitation on credit 
or refund under section 6511 has not expired.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866, as 
supplemented by Executive Order 13563. Therefore, a regulatory 
assessment is not required. It also has been determined that section 
553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does 
not apply to these regulations and, because the regulations do not 
impose a collection of information on small entities, the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to 
section 7805(f) of the Code, the notice of proposed rulemaking that 
preceded these final regulations was submitted to the Chief Counsel for 
Advocacy of the Small Business Administration for comment on its impact 
on small business, and no comments were received.

Drafting Information

    The principal author of these final regulations is Patrick Clinton 
of the Office of Associate Chief Counsel (Income Tax & Accounting). 
However, other personnel from the IRS and Treasury Department 
participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR part 1 is amended as follows:

[[Page 46503]]

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding an 
entry in numerical order to read as follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 1.274-2 also issued under 26 U.S.C. 274(o). * * *


0
Par. 2. Section 1.274-2 is amended by revising paragraph (f)(2)(iv) to 
read as follows:


Sec.  1.274-2  Disallowance of deductions for certain expenses for 
entertainment, amusement, recreation, or travel.

* * * * *
    (f) * * *
    (2) * * *
    (iv) Reimbursed entertainment, food, or beverage expenses--(A) 
Introduction. In the case of any expenditure for entertainment, 
amusement, recreation, food, or beverages made by one person in 
performing services for another person (whether or not the other person 
is an employer) under a reimbursement or other expense allowance 
arrangement, the limitations on deductions in paragraphs (a) through 
(e) of this section and section 274(n)(1) apply either to the person 
who makes the expenditure or to the person who actually bears the 
expense, but not to both. If an expenditure of a type described in this 
paragraph (f)(2)(iv) properly constitutes a dividend paid to a 
shareholder, unreasonable compensation paid to an employee, a personal 
expense, or other nondeductible expense, nothing in this exception 
prevents disallowance of the expenditure to the taxpayer under other 
provisions of the Code.
    (B) Reimbursement arrangements involving employees. In the case of 
an employee's expenditure for entertainment, amusement, recreation, 
food, or beverages in performing services as an employee under a 
reimbursement or other expense allowance arrangement with a payor (the 
employer, its agent, or a third party), the limitations on deductions 
in paragraphs (a) through (e) of this section and section 274(n)(1) 
apply--
    (1) To the employee to the extent the employer treats the 
reimbursement or other payment of the expense on the employer's income 
tax return as originally filed as compensation paid to the employee and 
as wages to the employee for purposes of withholding under chapter 24 
(relating to collection of income tax at source on wages); or
    (2) To the payor to the extent the reimbursement or other payment 
of the expense is not treated as compensation and wages paid to the 
employee in the manner provided in paragraph (f)(2)(iv)(B)(1) of this 
section (however, see paragraph (f)(2)(iv)(C) of this section if the 
payor receives a payment from a third party that may be treated as a 
reimbursement arrangement under that paragraph).
    (C) Reimbursement arrangements involving persons that are not 
employees. In the case of an expense for entertainment, amusement, 
recreation, food, or beverages of a person who is not an employee 
(referred to as an independent contractor) in performing services for 
another person (a client or customer) under a reimbursement or other 
expense allowance arrangement with the person, the limitations on 
deductions in paragraphs (a) through (e) of this section and section 
274(n)(1) apply to the party expressly identified in an agreement 
between the parties as subject to the limitations. If an agreement 
between the parties does not expressly identify the party subject to 
the limitations, the limitations apply--
    (1) To the independent contractor (which may be a payor described 
in paragraph (f)(2)(iv)(B) of this section) to the extent the 
independent contractor does not account to the client or customer 
within the meaning of section 274(d) and the associated regulations; or
    (2) To the client or customer if the independent contractor 
accounts to the client or customer within the meaning of section 274(d) 
and the associated regulations. See also Sec.  1.274-5.
    (D) Reimbursement or other expense allowance arrangement. The term 
reimbursement or other expense allowance arrangement means--
    (1) For purposes of paragraph (f)(2)(iv)(B) of this section, an 
arrangement under which an employee receives an advance, allowance, or 
reimbursement from a payor (the employer, its agent, or a third party) 
for expenses the employee pays or incurs; and
    (2) For purposes of paragraph (f)(2)(iv)(C) of this section, an 
arrangement under which an independent contractor receives an advance, 
allowance, or reimbursement from a client or customer for expenses the 
independent contractor pays or incurs if either--
    (a) A written agreement between the parties expressly states that 
the client or customer will reimburse the independent contractor for 
expenses that are subject to the limitations on deductions in 
paragraphs (a) through (e) of this section and section 274(n)(1); or
    (b) A written agreement between the parties expressly identifies 
the party subject to the limitations.
    (E) Examples. The following examples illustrate the application of 
this paragraph (f)(2)(iv).

    Example 1. (i) Y, an employee, performs services under an 
arrangement in which L, an employee leasing company, pays Y a per 
diem allowance of $10x for each day that Y performs services for L's 
client, C, while traveling away from home. The per diem allowance is 
a reimbursement of travel expenses for food and beverages that Y 
pays in performing services as an employee. L enters into a written 
agreement with C under which C agrees to reimburse L for any 
substantiated reimbursements for travel expenses, including meals, 
that L pays to Y. The agreement does not expressly identify the 
party that is subject to the deduction limitations. Y performs 
services for C while traveling away from home for 10 days and 
provides L with substantiation that satisfies the requirements of 
section 274(d) of $100x of meal expenses incurred by Y while 
traveling away from home. L pays Y $100x to reimburse those expenses 
pursuant to their arrangement. L delivers a copy of Y's 
substantiation to C. C pays L $300x, which includes $200x 
compensation for services and $100x as reimbursement of L's payment 
of Y's travel expenses for meals. Neither L nor C treats the $100x 
paid to Y as compensation or wages.
    (ii) Under paragraph (f)(2)(iv)(D)(1) of this section, Y and L 
have established a reimbursement or other expense allowance 
arrangement for purposes of paragraph (f)(2)(iv)(B) of this section. 
Because the reimbursement payment is not treated as compensation and 
wages paid to Y, under section 274(e)(3)(A) and paragraph 
(f)(2)(iv)(B)(1) of this section, Y is not subject to the section 
274 deduction limitations. Instead, under paragraph (f)(2)(iv)(B)(2) 
of this section, L, the payor, is subject to the section 274 
deduction limitations unless L can meet the requirements of section 
274(e)(3)(B) and paragraph (f)(2)(iv)(C) of this section.
    (iii) Because the agreement between L and C expressly states 
that C will reimburse L for substantiated reimbursements for travel 
expenses that L pays to Y, under paragraph (f)(2)(iv)(D)(2)(a) of 
this section, L and C have established a reimbursement or other 
expense allowance arrangement for purposes of paragraph 
(f)(2)(iv)(C) of this section. L accounts to C for C's reimbursement 
in the manner required by section 274(d) by delivering to C a copy 
of the substantiation L received from Y. Therefore, under section 
274(e)(3)(B) and paragraph (f)(2)(iv)(C)(2) of this section, C and 
not L is subject to the section 274 deduction limitations.
    Example 2. (i) The facts are the same as in Example 1 except 
that, under the arrangements between Y and L and between L and C, Y 
provides the substantiation of the expenses directly to C, and C 
pays the per diem directly to Y.
    (ii) Under paragraph (f)(2)(iv)(D)(1) of this section, Y and C 
have established a reimbursement or other expense allowance 
arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. 
Because Y substantiates directly to C and the

[[Page 46504]]

reimbursement payment was not treated as compensation and wages paid 
to Y, under section 274(e)(3)(A) and paragraph (f)(2)(iv)(C)(1) of 
this section Y is not subject to the section 274 deduction 
limitations. Under paragraph (f)(2)(iv)(C)(2) of this section, C, 
the payor, is subject to the section 274 deduction limitations.
    Example 3. (i) The facts are the same as in Example 1, except 
that the written agreement between L and C expressly provides that 
the limitations of this section will apply to C.
    (ii) Under paragraph (f)(2)(iv)(D)(2)(b) of this section, L and 
C have established a reimbursement or other expense allowance 
arrangement for purposes of paragraph (f)(2)(iv)(C) of this section. 
Because the agreement provides that the 274 deduction limitations 
apply to C, under section 274(e)(3)(B) and paragraph (f)(2)(iv)(C) 
of this section, C and not L is subject to the section 274 deduction 
limitations.
    Example 4. (i) The facts are the same as in Example 1, except 
that the agreement between L and C does not provide that C will 
reimburse L for travel expenses.
    (ii) The arrangement between L and C is not a reimbursement or 
other expense allowance arrangement within the meaning of section 
274(e)(3)(B) and paragraph (f)(2)(iv)(D)(2) of this section. 
Therefore, even though L accounts to C for the expenses, L is 
subject to the section 274 deduction limitations.

    (F) Effective/applicability date. This paragraph (f)(2)(iv) applies 
to expenses paid or incurred in taxable years beginning after August 1, 
2013.
* * * * *
0
Par. 3. Section 1.274-8 is revised to read as follows:


Sec.  1.274-8  Effective/applicability date.

    Except as provided in Sec. Sec.  1.274-2(a), 1.274-2(e), 1.274-
2(f)(2)(iv)(F), and 1.274-5, Sec. Sec.  1.274-1 through 1.274-7 apply 
to taxable years ending after December 31, 1962.

Beth Tucker,
 Deputy Commissioner for Services and Enforcement.
    Approved: June 25, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-18559 Filed 7-31-13; 8:45 am]
BILLING CODE 4830-01-P