Travel, Meals & Entertainment, and Employee Fringe Benefits

Transcription

1 Travel, Meals & Entertainment, and Employee Fringe Benefits 2018 Tax, Finance & Accounting Conference for Cooperatives August 5, 2018

2 Tax Reform Impact Meals & Entertainment/Fringe Benefits Broad impacts Default treatment under old law was generally a range from 100% to 50% deductible Range is now 100% deductible to 100% non-deductible Legacy M&E disallowance M-3 typically increases in range of 20% to 70% Enhanced information needed to compute correct M-3 Calculating correct M-3 is more complicated for many taxpayers Additional disallowance applicable to qualified transportation fringe Includes amounts related to parking, transit passes, commuter and vanpool Taxpayers need to consider fringes provided or reimbursed by employer; or part of a pre-tax spending plan These amounts have not historically been tax sensitized in taxpayers financial records. Effective for expenses paid or incurred after Fiscal year end: still effective Additional limitations are scheduled to become effective after Copyright 2018 Deloitte Development LLC. All rights reserved. 2

3 Tax Reform Impact Summary M&E Type of M&E Expenditure Old Law Deductibility New Law Deductibility Client entertainment Client meals 50% deductible 100% non-deductible (ND) 50% deductible Entertainment related 100% ND Business related - 50% ND Cafeteria subsidy & convenience of employer meals Mix of 100% deductible & income inclusion Mix of 50% deductible & income inclusion. 100% ND post 2025 De minimis food & beverage Mix of 100% & 50% deductible 50% deductible Employee recreation Mix of 100% & 50% deductible Mix of 100% deductible & 100% ND Overtime meals Commuting provided to employees Mix of 100% deductible & income inclusion Mix of 100% deductible & income inclusion Mix of 50% deductible & income inclusion Mix of 100% ND & income inclusion Skyboxes & suites Mix of 50% & 100% ND 100% ND Copyright 2018 Deloitte Development LLC. All rights reserved. 3

4 Cafeterias Historical issues Maybe income inclusion to employees but generally no limitation to deduction of employer Tax reform Income inclusion or 50% limitation Full deduction only if income inclusion Income inclusion side has not changed Effective for expenses paid or incurred after After : no deduction Calculate income inclusion or 50% limitation for 2018 Test in regulations satisfied by employees paying enough for food, no income inclusion issue Result is 50% limitation to employer based on cafeteria costs or safe-harbor method in regulations Prospective changes for tax enhancement Employment tax exposure analysis Analysis of amount subject to 50% limitation Copyright 2018 Deloitte Development LLC. All rights reserved. 4

5 Commuting Provided to Employees Overtime transportation Old law: income inclusion when not infrequent but full deduction whether income inclusion or not (no mechanism to disallow deduction to employer) Tax reform Income inclusion issue when not infrequent Non-deductible if not included in income Effective for expenses paid or incurred after Safety exception under IRC 132 Regs is not realistic Employment tax exposure mitigation with correct data Other commuter benefits Commuter passes» Employer subsidy: income inclusion» Employee pre-tax dollars: no deduction to employer Parking» Employer subsidy: income inclusion» Employee pre-tax dollars: no deduction to employer» For onsite parking structure/surface parking: determination of cost related to providing parking fringe in process Shuttle buses/vans» No deduction Copyright 2018 Deloitte Development LLC. All rights reserved. 5

6 Transportation Fringe Benefits Pre-Tax Transportation Old Law: Employer could deduct pre-tax transportation benefit not subject to tax by employee (e.g. up to $260/month for parking and mass transit). New Law: Employer cannot deduct pre-tax transportation benefit not subject to tax by employee. Notes: Any benefits that are imputed into income of the employee are still deductible by the employer. Certain states may mandate providing the pre-tax transportation benefits to its employees. Parking Included in Facility Owned or Leased by Employer Old Law: Employer costs associated with providing parking to employees in a facility owned or leased by employer were deductible to employer. New Law: These costs may be considered employer provided commuting and therefore non-deductible to employer. Copyright 2018 Deloitte Development LLC. All rights reserved. 6

7 Fringe Recreation/Entertainment On-site athletic facilities Subject to disallowance if primarily available for highly compensated employees If available to all employees, then fully deductible under IRC Section 274(e)(4) Club dues Hunting, fishing facilities» Still no deduction on facility» Deduction for food, beverages, etc. are gone Membership and club dues related to business, pleasure, recreation or social purposes are not deductible This could also include reimbursed employee costs for gyms and other recreation clubs that are not compensation to employee. Copyright 2018 Deloitte Development LLC. All rights reserved. 7

8 Other Fringe Benefits Moving Expenses and Bicycle Commuting Expenses Old Law: Employer could exclude from income employer-paid or reimbursed moving expenses for employees, as well as bicycle commuting expenses. New Law: US tax reform has repealed the exclusion from employee income for employer-paid or reimbursed moving expenses for employees (with an exception for members of the armed forces on active duty), as well as the exclusion for bicycle commuting expenses. Beginning January 1, 2018, employers should include in income relocation costs paid on behalf of employees as well as any reimbursement for bicycle commuting expenses. Copyright 2018 Deloitte Development LLC. All rights reserved. 8

9 Next Steps under Tax Reform Impact on 2018 Estimates Historically tax limited accounts: some expenses now subject to 100% nondeductibility rather than 50% non-deductibility Historically fully deducted accounts: likely now partially tax limited Cafeteria meals see below Evaluation of Company s fringe benefits related to transportation Computing M-3 for return including part of 2018 under new law Historically tax limited accounts: similar issue as estimates Historically fully deducted accounts: similar issue as estimates Items not previously considered will need to be assessed relating to the following: o Cafeteria operations o Qualified parking o Qualified transit passes o Qualified commuting expenses Copyright 2018 Deloitte Development LLC. All rights reserved. 9

10 Next Steps under Tax Reform (continued) Computing M-3 or income inclusion from cafeteria meals Introduction of 50% limitation creates tax return calculation out of what was under old law an income inclusion issue Improved information needed from cafeteria to avoid overstating M-3 or income inclusion Prospectively tax sensitizing expense reporting, account structure, vendor payment process Mapping from expense reporting & accounts payable to GL needs to be updated Expense reporting needs to differentiate 50% & 100% non-deductible client meals or default to 100% ND Information will be necessary for cafeteria and food services providers in detail and breakouts not historically required Determination of expenses associated with qualified transportation fringe will need to be developed. Additional complexities will exist when transportation fringe is provided through owned property (parking garage) versus amounts paid to service providers. Statistical sampling to calculate proper disallowance Proper tax classification of approximately 150 samples Extrapolation of results to entire population of expenses Copyright 2018 Deloitte Development LLC. All rights reserved. 10

11 Contacts Ed Sturm, Deloitte Tax LLP National Service Offering Leader M&E 25 years at Deloitte; 16 years in national M&E practice Minneapolis, MN , Tammie Eichmann, Deloitte Tax LLP Senior Manager M&E 10+ years at Deloitte in national M&E practice Minneapolis, MN , Copyright 2018 Deloitte Development LLC. All rights reserved. 11

12 Appendix Copyright 2018 Deloitte Development LLC. All rights reserved. 12

13 Client Entertainment Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Client outing (e.g. golf outing) 50% deductible 100% non-deductible Food and beverage at outing 50% deductible 100% non-deductible Copyright 2018 Deloitte Development LLC. All rights reserved. 13

14 Entertainment Ticket/Skybox Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Skybox tickets 50% deductible 100% non-deductible Food/beverage in skybox 50% deductible 100% non-deductible Sport tickets 50% deductible 100% non-deductible Food/beverage at sporting event 50% deductible 100% non-deductible Concert tickets 50% deductible 100% non-deductible Food/beverage at concert 50% deductible 100% non-deductible Definition of entertainment see Treasury Regulation Copyright 2018 Deloitte Development LLC. All rights reserved. 14

15 Client Meal Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Meal to celebrate deal closing 50% deductible 100% non-deductible assuming the purpose is entertainment Meal with substantiation of business purpose other than entertainment Meal with no substantiation of business purpose other than entertainment Networking meal with non-client with substantiation of business purpose other than entertainment Networking meal with non-client with no substantiation of business purpose other than entertainment 50% deductible 50% deductible 50% deductible 100% non-deductible 50% deductible 50% deductible 50% deductible 100% non-deductible Definition of entertainment see Treasury Regulation Copyright 2018 Deloitte Development LLC. All rights reserved. 15

16 Employee Recreation Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Holiday party Sports leagues (e.g. softball league) Food at/after sports league game Employee morale events Counseling/mentor meals Cake to celebrate birthdays/anniversaries 50% non-deductible if discriminatory 50% non-deductible if discriminatory 50% non-deductible if discriminatory 50% non-deductible if discriminatory 50% non-deductible if discriminatory (discrimination determined at level of each meal) 50% non-deductible if discriminatory non-deductible if discriminatory non-deductible if discriminatory non-deductible if discriminatory non-deductible if discriminatory non-deductible if discriminatory (may consider treating as de minimis meal to obtain 50% deduction need to consider frequency) non-deductible if discriminatory (may consider treating as de minimis meal to obtain 50% deduction need to consider frequency) Definition of discriminatory in IRC Section 414(q) Copyright 2018 Deloitte Development LLC. All rights reserved. 16

17 De minimis Meal Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Coffee/tea in kitchen 100% deductible 50% deductible Meals at internal meetings Mix of 100% deductible and 50% deductible 50% deductible Copyright 2018 Deloitte Development LLC. All rights reserved. 17

18 Overtime Meal Examples Type of M&E Expenditure Old Law Deductibility New Law Deductibility Overtime Meal Infrequent 100% deductible 50% deductible Overtime Meal - Frequent 100% deductible if imputed to employee as income 100% deductible if imputed to employee as income Note: Generally, the rules regarding fringe benefits and income inclusion were unchanged as part of tax reform. However, the employer level deductibility considerations have changed. Definition of frequency in Treasury Regulations Copyright 2018 Deloitte Development LLC. All rights reserved. 18

19 This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte Deloitte refers to Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see to learn more about our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2018 Deloitte Development LLC. All rights reserved.