Travel

Business Purpose  |  UR Forms Required  |  Third Pary Travel Purchases by UR Employee  |  I-94 Card  |  Recruitment  |  Lodging  |  Lease Car

IRS Accountable Plan Rules

The accountable plan rules apply to nonresident aliens as well as to U.S. citizens and resident aliens. This means that payments made to, or on behalf of, nonresident alien individuals for the purpose of defraying or reimbursing the deductible travel and lodging expenses of such nonresident alien individuals are excludible from the gross income of such nonresident alien individuals and are not reportable to the Internal Revenue Service by the payers of such payments, on the condition that the requirements of the accountable plan rules are met.

The requirements of the accountable plan rules are found in Treasury Regulation 1.62-2; and they require that the payee (1) establish the business purpose and connection of the expenses; (2) substantiate the expenses claimed to the payer within a reasonable period of time; and (3) return any amounts to the payer which are over and above the substantiated business expenses within a reasonable period of time. Amounts which are over and above the substantiated business expenses, or not accounted for within a reasonable period of time, are reportable to IRS on Form W-2 and subject to withholding of employment taxes (or are reportable on Form 1042-S and subject to section 1441 withholding, as applicable).

Nonresident aliens are taxed at the rate of 30% on certain types of U.S. source gross income that are not effectively connected with the conduct of a U.S. trade or business under section 871(a)(1)(A) of the Code. These laws are applicable to nonresident alien visiting lecturers (considered independent contractors of the universities or colleges for employment tax purposes) unless an exemption is provided by another section of the Code or a tax treaty.

Under section 1441(a) of the Code, the tax is required to be collected by the person making the payment to a nonresident alien at the time the payment is made. The reimbursements for travel and living expenses (treated as remunerations or emoluments) of visiting lecturers are included within the types of gross income subject to the tax and withholding pursuant to section 1441(b) of the Code.

To Explain:

1. Accountable plan rules only apply when there is a business purpose for the travel.
   
   
   
2. IRS regulations make it clear that a business purpose requires that the travel be connected to employment or self-employment services. (There must be an employment relationship between the University and the nonresident alien in order for travel and lodging expenses to be considered reimbursable.) Employment relationship means either an:
• employee of the University
• approved visiting scholar
  
  
  
3. The accountable plan requirements are:
• a business purpose has been proven (i.e. a flyer announcing NRA's visit &)
• the payee submits a T&E within a reasonable time period
• any amount advanced to the payee is returned to the University with the T&E
  
  
  
4. The IRS considers the presentation of a paper to be performing services. If the travel reimbursements relate to services, they can be excluded to the extent that they are paid under an accountable plan.
   
   
   
5. Travel reimbursement must show a business purpose.
   
   
   
6. Travel reimbursement for independent contractors allows for the M&I per diem but not the full per diem that includes lodging. For housing to come up under the accountable plan for independent contractors it must be paid directly or reimbursed based on receipts.
   
   
   
7. UR forms required:
• Honorarium to be paid:
1. Compliance Statement
2. Foreign National Information Form
3. Employee-Independent Contractor Classification Checklist
• No Honorarium to be paid -- Travel only paid:
1. Compliance Statement
• A meeting with the Office of International Taxation is also required to complete US goverment forms that must also be signed and on file.
  
  
  
8. If the accountable plan requirements are not followed, the payee will be taxed the full amount of the travel expenses. This will be processed on either a W-2 or 1042-S, as the situation dictates. NRA's are taxed at 30%. This amount will be withheld at the time of reimbursement.
   
   
   
9. NRA's may be offered a treaty that will exempt them from taxation of travel expenses. The Office of International Taxation will determine if a tax treaty may be offered.
   
   
   
10. An employee of the University who purchases a plane ticket or pays US lodging for an NRA, is required to follow the same rules as the NRA in regards to the IRS' accountable plan rules for travel reimbursement.
    
    
    
11. Travel expenses incurred for recruiting purposes are allowed per IRS Rev. Rul. 63-77 -- as long as the payment doesn't exceed the actual expenses. If an NRA incurs travel expenses only, the documentation requested need only be a copy of the I-94 card (for immigration purposes). This is because the payment is not subject to tax.
    
    
    
12. No travel should be purchased in advance for a third party on a University employee's personal credit card. Please contact your department administrator to obtain the use of a university purchasing card.

I-94 Card

The I-94 card is a small green or white card given to all nonimmigrants when they enter the United States. The I-94 card serves as evidence that a nonimmigrant has entered the country legally. It is stamped with a date indicating how long the nonimmigrant may stay for that particular trip. It is this date-- and not the expiration date of the visa -- that controls how long a nonimmigrant can remain in the United States. A new I-94 card with a new date is issued each time the nonimmigrant legally enters the United States. Canadian visitors are not normally issued I-94 cards.

To Explain:

1. The I-94 card provides evidence of a nonimmigrants status in the US.
• I-94 -- for foreign visitors to the US if they hold a valid visa
• I-94W -- for foreign visitors to the US traveling under Visa Waiver program
  
  
  
2. The I-94 card is obtained from the transportation carrier (ship, airline, etc.)and must be surrendered to an inspector of the DHS / USCIS at the port of entry into the US when applying for admission.
   
   
   
3. A DHS official gives the bottom part -- the "departure" portion -- of the I-94 back to the traveler after reviewing all the documents. It is usually stapled into the passport. Admission to the US is granted and the I-94 is stamped. The stamp notes the date of entry into the US and the authorized period the visitor may remain in the country.
   
   
   
4. Under US law all travelers to the US must return their I-94/I-94W cards to the appropriate USCIS authorities. When the NRA leaves the US, the transportation carrier representative, usually at the check-in counter, removes the I-94 card form the passport.
   
   
   
5. When the I-94 card is not removed, which sometimes does not happen, the passenger's departure from the US will not be registered with USCIS. This can make it look as though the NRA has overstayed the period of time granted on admission. This can cause a problem as the visa may be subject to cancellation or the NRA denied re-entry into the US. In particular, NRAs on a visa waiver who remain beyond their permitted stay in the US can't reenter the US in the future without obtaining a visa. So, visitors must ensure that they surrender their I-94 or I-94W stub to their transport carrier before they depart the US. The traveler should complete the back of the card, listing the port of departure and date of departure from the US and the carrier/flight information. The card, together with a letter of explanation and evidence of departure from the US, should be sent to: ACS -- USCIS, SBU, P.O. Box 7125, London, KY, 40742-7125.
   
   
   
6. If a nonimmigrant changes from one status to another after admission to the US, the new I-94 will be issued via From I-797A and will not have a DHS stamp on it.
   
   
   
7. The I-94 has an admission number (11 digit number that is also referred to as the departure number) that functions as a DHS control number for locating the NRA's record in the DHS Nonimmigrant Information System (NIIS) file. SSA uses the I-94 number to access the NRAs status in SAVE.
   
   
   
8. Expired Visa:
• A visa is a document issued by the US Embassy or Consulate that gives the individual permission to travel to the US for a specific purpose as shown on the visa. It is an ENTRY document to the US.
• A visa has no relevance at all once an alien enters the US (except assurance that if the alien departs from the US, he will be able to get back.)
• It is not required for an alien in the US and not a problem for any employment authorization or tax purpose if it expires.
• Once an individual has entered the US, and is here legally, the term visa, and the visa itself ceases to have any relevance to what the person may do and how, where, and when he or she may obtain income.
• Upon arrival in the US, the individual is issued an I-94 card, Arrival-Departure Document, that indicates the individual's immigration status and authorized period of stay in the US.
• The I-94 number is the admission number.
• The I-94 number also notes the individuals work authorization when it is a function of the immigration status as it is with an H-1B.
• The I-94 card is, in effect, the "residence permit" which indicates the STATUS of the individual in the US.
• An individual has no need to obtain a new visa until he or she needs to travel outside the US and needs to reenter the US. It is applied for at a consulate or embassy abroad.
• Therefore, it is not unusual for an individual to have an expired visa or even a visa with a different immigration status if the individual has changed status while in the US.
• It is possible for a NRA to change status inside the US and never have a visa which corresponds to the new status. The new status is usually indicated on a combination Form I-797/I-94.

Recruitment

The IRS allows for a wide scope of visa types to be reimbursed for recruitment.

To Explain:

1. Employment Recruitment: Rev. Rul. 63-77 states that to the extent that the payments do not exceed expenses, the amounts are not considered gross income of the individuals.
   
   
   
2. It is always permissible to reimburse expenses for travel to a job interview, regardless of the immigration status (or even the lack thereof) of the job applicant. This means that persons in F-2, H-4, TD, B1/2, as well as persons without current status documentation, can be reimbursed for travel expenses for a job interview.
   
   
   
3. Student Recruitment: Currently, there is not a comparable revenue ruling for recruitment for attending the institution, although the situation is analogous. However, the only reason that an institution would make such reimbursements is because it is in the interests of the institution. Therefore, there is a good argument that such reimbursements are ordinary and necessary business expenses of the institution. Even though the individual has some benefit from the payment that should not cause the payment to be income to the individual. (Paula Singer and Lowell Hancock)
   
   
   
4. Spousal Travel: Taxable, unless the spouse is performing services or interviewing, as well.
   
   
   
5. Visa: Interviewees are not providing services and should travel in a B-1 status.

Lodging

The IRS has rules regarding lodging based on various circumstances and visa types.

To Explain:

1. Lodging provided to an NRA employed at UR is considered a fringe benefit.
• It is taxable wages unless an exception applies.
• An exception does exist to the wage rule, if the individual meets the temporarily-away-from-home requirements:
1. Tax home remains home country
2. Away for less than 1 year
   
   
   
2. Self-employed individuals may not use the substantiation rules for the full per diem which includes lodging. They may use only the M&I per diem.
   
   
   
3. Travel With a Business Purpose: If the activities of the visitor (in any nonimmigrant status) can be construed to involve the performance of personal services for the university, then the accountable plan rules can be employed to exempt the travel and lodging expenses from reporting and from federal withholding taxes.
• The payment for providing services can be simply room and board. If they are in the US for less than one year, and their tax home remains in their home country, and they can claim employee business expense deductions for their room and board. When these items are provided by their employer under an accountable plan, as is the case when room and board is provided, the room and board may be excluded from their income.
• The category of "personal service income" is broader than you might think. For example, in some cases, travel for the purposes of job interviews and receiving special awards or commendations have been considered for tax purposes to be "personal service income".
• The IRS will look to see if the personal service fully meets their requirements.
  
  
  
4. The total grant may be exempt under a tax treaty. Exemption is claimed on Form W-8BEN which must include a SSN or ITIN. Some tax treaties have articles concerning "other income", which can sometimes be used to exempt certain types of income from taxation when these certain types of income are not covered by any other article of the tax treaty.
   
   
   
5. Travel Without a Business Purpose: The honorarium and the reimbursed expenses are in the nature of a grant. (The accountable plan rules for excluding reimbursed expenses from tax only apply if there is a business purpose for visit.)
• The total amount paid including the expenses are subject to withholding and 1042-S reporting. The income is considered to be in the nature of "fixed, determinable, annual, or periodical" income (known as FDAP), and is subject to federal income tax withholding in the absence of tax treaty relief.
1. 30% withholding
2. 14% withholding for F, M, J, or Q visas
• Exception for F, M, J, or Q visas -- the reimbursed expenses can be offset with a withholding allowance computed under the rules in Revenue Procedure 88-24 if :
1. the activity in the US can be construed to be for the purpose of "studying, training, or research"
2. the stay in the USA will not exceed 365 days
3. classify this income as a scholarship/fellowship
4. the visitor would file a specially-prepared form W-4 claiming the travel and lodging expenses as "away from home expenses"
5. the taxable income is effectively reduced to zero
6. all federal withholding taxes are eliminated
   
   
   
6. Rent Deposit: If the deposit is not returned, it becomes part of the cost for renting the quarters and may be an employee business expense covered by the accountable plan rules. (If the individual is not providing services, the deposit not returned, and the rent is a taxable grant.) If the deposit is returned to the institution, there is no tax impact. If the deposit is returned to the individual and he does not return it to the institution, it is income to him subject to 30% withholding.
   
   
   
7. Resident Assistants in Dorms: The fair market value (FMV) of lodging provided to a resident assistant is excludible from gross income under IRC 119(a). The student does not need to file any form to claim this exclusion. In the case of a U.S. citizen or resident alien employee, the employer is not required to report this exclusion, but may report it in block 14 of form W-2 if he chooses. In the case of a nonresident alien payee, the employer will report the exclusion on form 1042-S using exemption code "2". However, the amount will not be reportable on form 1042-S if paid or supplied after 12-31-2000.

Lease Car

In a general information letter issued on December 16, 1998, the Office of IRS Assistant Chief Counsel (EB/EO) announced that the "accountable plan rules" and the working condition fringe benefit rules allowed by sections 62, 132, 162, and 274 of the Internal Revenue Code are applicable to nonresident alien individuals as well as to U.S. citizens and resident aliens. This means that payments made to, or on behalf of, nonresident alien individuals for the purpose of defraying or reimbursing the deductible travel and lodging expenses of such nonresident alien individuals are excludible from the gross income of such nonresident alien individuals and are not reportable to the Internal Revenue Service by the payers of such payments, on the condition that the requirements of the accountable plan rules are met.

To Explain:

1. A NRA may use a car leased by the University of Richmond for business purposes as long as the following conditions as temporarily-away-from home on business are met:
• Must travel under a business visa, not a tourist visa, in order to be reimbursed for travel expenses. (For example, a B-1 visa is acceptable, a B-2 is not.)
• There is a business purpose for the visit
• The visit is anticipated to last a year or less
• The expenses qualify as business expenses
• The expenses are reimbursed under an accountable plan
  
  
  
2. The IRS requires that business expenses be substantiated by adequate records or sufficient evidence to support the mileage statement.
   
   
   
3. The business expenses must be reimbursed under an accountable plan and should not be included as wages on a Form W-2.
• Must be an employee of the University
• Must have a proven business purpose for the expense
• Must submit mileage information / receipts in a timely manner
  
  
  
4. For an NRA employee of the University, nonqualified mileage (i.e. personal mileage) on a leased car is compensation subject to wage withholding. The amount will be reported on a W-2 or 1042-S.
   
   
   
5. When compensation is exempt under an income tax treaty, the nonqualified mileage is also exempt when added to the treaty exempt income. However, the tax treaty may have an income limit whereby income over the limit is not tax exempt.