[LGM] Reimbursement Tax Treatment

[Louis Desjardins]

Hi Franke,

2017-11-28 19:48 GMT-05:00 Frank Trampe <frank.trampe at gmail.com>:

> How have we classified reimbursements for tax purposes in past years?
>

We gathered all invoices from all travellers and paid only what was backed
by a document. We insist on the fact that we do need an invoice, not a
credit card statement. The real thing is needed. Whether or not this
document shows taxes is irrelevant. The amount is paid in full, tax
included.


> I want to make sure that I know all of the options before I talk to a tax
> lawyer.
>

I would think you would need to speak with an accountant, not a lawyer, but
that’s only a suggestion. I don’t pretend to know the laws in the US!

>
> 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).
>

The income is the sponsorship. The expenses are the invoices of the
travellers. The income tax should apply to the profits if the company is
not a non-profit. If the company is a non-profit, there is no income tax to
pay.


>
> 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.
>

The entity that reimburses should definitely be a non-profit.

What happens at the other end (the person being reimbursed) is beyond our
scope. We cannot be responsible for the income and tax matters that affect
anyone, in various jurisdictions. That person receives a payment and if
there is an investigation by the government of the country where that
person lives, the invoice is enough to show that it was only that that was
reimbursed. Moreover, the traveller has paid with its own money which has
already been taxed. The money on the first place belongs to the traveller
who pays the ticket. The government has no right on that money once the
person has paid his income tax. What remains in his pocket belongs to him,
period. What LGM does in only reimbursing an expense to that person.


>
> 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*.
>

To my understanding, this falls into the category of revenue. A
reimbursement is not that. (You have no more money in your pocket once you
get your reimbursement.) Even if it was accounted as a revenue (which I
doubt, but in any event), it would apply to a US citizen only. No traveller
from outside the US would have to pay income tax to the US.



> 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.
>

Donors are companies who have an accounting dept and their donations are
considered as expenses. They provide a PO# and the non-profit organisation
provides an invoice. The money is issued. The transaction is complete. How
the donors handle the transaction after is also beyond our scope.


>
> 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.
>

I don’t think this apply to the reimbursements. But I agree there is a
possibility that it could be considered as a gift but this would only
affect US residents, if it applies. Again, with the proof of purchase and
the evidences that the LGM really happened at the said dates, it should be
enough to clarify the situation, if clarifications are needed to prove that
the reimbursement transaction is not a gift but only that, a reimbursement.

I hope this help.

Louis


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