Opinion ID: 771439
Heading Depth: 3
Heading Rank: 1

Heading: Business Connection Test

Text: 11 A reimbursement plan passes the business connection test if the expenses incurred are covered under 26 U.S.C. 161 et seq. and they are paid or incurred by the employee in connection with the performance of services as an employee of the employer. 26 C.F.R. 1.62-2(d)(1). In order for the reimbursements to qualify as business expenses, the employer can pay the employee only the amount the employee incurs (or is reasonably expected to incur). Id. at 1.62-2(d)(3)(i). 12 The district judge found that Trucks did not meet the business connection prong of Code 62 because Trucks paid its employees the 6% of load revenue flat rate, regardless of whether the drivers paid for lodging or slept in the sleeper compartments of the trucks. In reaching this conclusion, the district judge relied on the lack of record-keeping on how many nights the drivers slept in motels and Trucks's owner, Helen Willis's, affidavit stating that she did not know how many nights the drivers incurred lodging expenses. 13 Trucks relies on Willis's deposition to counter this finding because Willis outlines the research that she did on how other trucking companies reimbursed drivers for expenses. Based on this research, Trucks claims that it relied on standard business practices to establish the 6% of load revenue reimbursement rate. Standard business practice is an acceptable method to anticipate reasonable expenses when employees are paid at a flat rate or stated schedule. See Rev. Proc. 90-60, 1990-2 C.B. 651 3.03 4 ([S]uch allowance may be paid ... on any other basis that is consistently applied and in accordance with reasonable business practice.). It is possible that a jury would decide that Trucks passes the business connection test because Willis could reasonably expect the drivers to incur the same expenses as other drivers in the industry. Additionally, the focus of the business connection test is on the employer's reasonable expectations, not the drivers' actual expenditures. These questions of reliability and state of mind fall within the purview of the jury. 14 The IRS analogizes this case to Shotgun Delivery, Inc. v. United States, 85 F.Supp.2d 962 (N.D.Cal.2000). Not only is that case not binding in this circuit, nor on any circuit court, but also summary judgment was granted to the IRS because Shotgun's reimbursement arrangement reimbursed its drivers regardless of actual mileage driven or expenses incurred. Id. at 965. Trucks's plan was based mostly on the mileage driven, and then adjusted for factors that would make the trip longer or more difficult. Therefore, it is not analogous to Shotgun.