The IRS has been busy adding to its regulatory agenda. Here’s the latest news from the regulations front.
1. Proposed regs on local lodging expenses
Employees who travel away from home overnight and who substantiate their lodging expenses may have those expenses reimbursed tax-free. Under proposed regulations, employees who aren’t traveling away from home may have local lodging expenses reimbursed as a working-condition, provided their employers have a bona fide reason to require them to stay overnight at a local hotel.
The regs establish a safe harbor under which employees may be reimbursed tax-free if:
- The local lodging is necessary for them to fully participate in bona fide , conferences, training activities or other business functions (e.g., they’re required to be on-call and there are no sleeping facilities on the employer’s premises).
- They’re required to remain at the activity overnight.
- The lodging isn’t lavish or extravagant.
- They stay at local hotels for not more than five calendar days once each calendar quarter.
In addition, the proposed regs clarify that employers can’t make tax-free reimbursements for:
- Local lodging expenses incurred by new hires staying at hotels until they find permanent housing.
- Expenses incurred by employees who work overtime and can’t make it home.
- Expenses incurred for a weekend at a luxury hotel or resort.
However, since those expenses are fully taxable, employers may deduct them as compensation expenses.
The regs would supersede the IRS’ 2007 guidance on local lodging expenses, under which employees’ expenses could be reimbursed tax-free if the lodging was temporary and necessary for them to participate in or be available for a bona fide business meeting or function. You may rely on these regs until final regs are published. (77 F.R. 24657, 4-25-12)
2. Proposed regs on EINs
To help the IRS determine a business’s correct ownership details, proposed regs would require any person who is issued an Employer Identification Number (EIN) to provide updated information in the manner and frequency required by tax forms, instructions and other guidance.
The regs’ intent is to permit the IRS to collect the names and Taxpayer Identification Numbers of a business’ responsible parties—principal officers, general partners, owners of disregarded entities or any person who directly or indirectly controls, manages or directs the business. (77 F.R. 15004, 3-14-12)
Note: As of May 21, the IRS began issuing only one EIN per responsible party per day.