Opinion ID: 771439
Heading Depth: 3
Heading Rank: 2

Heading: Substantiation Requirement

Text: 15 The substantiation test requires employees to substantiate each business expense to his or her employer within a reasonable time period. The employee must give the employer information sufficient to substantiate the amount, time, place, and business purpose of the expense. 26 C.F.R. 1.62-2(e)(2). In a series of publications, the Commissioner exempted employers that reimburse their employees on a flat rate per diem allowance from this substantiation requirement if the employer's plan meets certain criteria. The definition of a per diem allowance eligible to bypass this requirement is a payment under a reimbursement or other expense allowance arrangement that meets the requirements specified in section 1.62-(c)(1) of the regulations and that is 16 (1) paid with respect to ordinary and necessary business expenses incurred, or which the payor reasonably anticipates will be incurred, by an employee for lodging, meal, and/or incidental expenses for travel away from home in connection with the performance of services as an employee of the employer, (2) reasonably calculated not to exceed the amount of the expenses or the anticipated expenses, and (3) paid at the applicable Federal per diem rate, a flat rate or stated schedule, or in accordance with any other Service-specified rate or schedule. Rev. Proc. 90-60, 1990-2 C.B. 651, 652 3.01. 17 The first prong of this test is not in dispute. Addressing the second and third prongs, Trucks claims that its plan falls under this exception to the substantiation requirement because the reimbursement is for the amount that Trucks reasonably anticipated drivers to spend and the final reimbursement was lower than the federal per diem rate. The district judge disagreed and found that the relationship between the drivers' expenses and the 6% reimbursement was tenuous, and that Trucks's plan was not reasonably calculated not to exceed the amount of expenses or anticipated expenses as required by the revenue procedure. 18 We conclude that whether or not Trucks's policy was reasonable is a question of fact for the jury to decide because Trucks provided some evidence that its plan was reasonably calculated not to exceed anticipated expenses. For example, Trucks argues that it was reasonable to believe that its plan would qualify because it resulted in reimbursements lower than what the federal government says an employer could reasonably anticipate. The reasonableness of both Trucks's calculations and anticipations is a jury question and not appropriate for summary judgment because Trucks has produced some evidence that its plan met the IRS requirements at the time.