[LGM] Reimbursement Tax Treatment

[Frank Trampe]

How have we classified reimbursements for tax purposes in past years? I
want to make sure that I know all of the options before I talk to a tax
lawyer.

Most of our payments will be to non-resident foreigners (not Americans).
The United States does not have an applicable VAT, but it does subject
certain classes of income to taxation and withholding (a deposit on
possible taxes owed).

There are several tax treatments that seem appropriate.

In the best case, we would gather the necessary documentation to classify
the expense reimbursement as being under a so-called "accountable plan
<https://www.irs.gov/individuals/international-taxpayers/nonresident-aliens-and-the-accountable-plan-rules>."
If the expenses are tied to the recipient's paid work in some way, directly
advance the interests of the payer, and are fully backed by receipts, we
can fit them into that silo in many cases. *They would not be subject to
any taxation or withholding*. In this case, donors whose business interests
are served by the meeting can deduct their shares of these reimbursements.

In a case in which the recipient is in an appropriate field of work but
fails to meet some of the finer points of the accountable plan, *30% of the
amount paid would be subject to withholding, all recoverable upon
submission of a U. S. tax return*. The recipient could either classify the
money as a business expense or (in case he has no other American income)
allow it as income and still pay no taxes due to the standard deduction
($6,350). For requests filed before January 1st and thus considered
reimbursed in 2017, the recipient could close out his tax year and request
a refund at the beginning of 2018. This handling is also tax-deductible for
donors.

In case the recipient is not in an appropriate field of work, we might be
able to classify the reimbursement as a gift. Since all such "gifts" would
be under $14,000, *they would not incur any tax liabilities or reporting
requirements*. The downside of this approach is that the money would be in
a separate silo that would not be expensible by donors for tax purposes.
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