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

Heading: analysis

Text: 10 Though we will address each of the three prongs of the 62 test for an accountable plan independently, each of the prongs ultimately relies on the question of whether Trucks reasonably anticipated and calculated the drivers' expenses before reimbursing them. Our review of the proffered evidence shows that Trucks presented sufficient evidence to create a genuine dispute about its state of mind. These questions of reasonableness and state of mind are proper questions for the jury and should not be decided on summary judgment once Trucks has met its initial burden. See American Airlines, Inc. v. United States, 204 F.3d 1103, 1110 (Fed.Cir.2000) ([W]e find that a factual dispute exists concerning whether American reasonably believed its per diem rates were at or below its flight crew employees' actual expenses.); Alabama Farm Bureau Mut. Cas. Co., Inc. v. American Fid. Life Ins. Co., 606 F.2d 602, 609 (5th Cir.1979) (Summary judgment may be improper, even though the basic facts are undisputed, if the ultimate facts in question are to be inferred from them, and the parties disagree regarding the permissible inferences that can be drawn from the basic facts.).
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.
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.
19 Federal regulations require an employee to return to the employer within a reasonable time any amount paid under the arrangement in excess of the expenses substantiated in accordance with paragraph (e) of this section. 26 C.F.R. 1.62- 2(f)(1). In the case of a per diem allowance, however, a plan will satisfy this requirement provided the allowance is paid at a rate for each day or mile of travel that is reasonably calculated not to exceed the amount of the employee's expenses or anticipated expenses and the employee is required to return to the payor within a reasonable period of time any portion of such allowance which relates to days or miles of travel not substantiated. Id. at 1.62-2(f)(2). 20 The district court found that because Trucks's policy did not require drivers to return the 1% of load revenue directed towards lodging if they chose to sleep in the sleeping berths in the trucks, Trucks failed this third requirement as well. Trucks relies on Rev. Proc. 90-60 7.02, which requires accountable per diem allowances to ask that employees return the per diem allowance for days of travel not substantiated, as opposed to costs not substantiated. Because Trucks reimbursed drivers after the trip, and, therefore, already knew how many days had been substantiated, it argues that it meets this requirement. Again, this is a question for the jury, because it depends on whether Trucks's plan qualifies as a per diem allowance, which depends on its reasonable anticipation of expenses.