S Corp shareholder home office

[WhiteOleander]

And again, we are not talking about property taxes and mortgage interest. Those deductions are allowed anyway, so don’t bother reimbursing those expenses. We are talking about the other deductions (such as utilities and insurance) that would only be deductible as a miscellaneous deduction on Schedule A if there was no accountable plan in place.

And again I will state those deductions are not allowed anywhere anyway in an employer/employee relationship. If you are going to continue to say they are, please provide a reference. I have previously provided a reference for my statements.

The reference you provided concerns an employee RENTING the office to the corp. If the employee uses the office for the convenience of the employer, there is no rent involved. The employee/shareholder can then set up an accountable plan and be reimbursed for the percentage of the house expenses related to the office. Please provide a reference that this is not correct. Remember, no renting is involved.

[Brad Imsdahl]

TheTaxBook™ — 2008 Tax Year page 5-15 says the following:

Renting home office to employer. If an employee rents a part
of his or her home to an employer, and uses the rented part in
performing services for the employer as an employee, the deduction
for the business use of a home is limited. Mortgage interest,
real estate taxes, and personal casualty losses for the rented part
are deductible. However, the business portion of other expenses
such as insurance, utilities, repairs, and depreciation are not
deductible. [IRC §280A(c)(6)]

TheTaxBook then provides the following example:

Example: Herb is an employee of his S corporation which he runs out of
his home office. He charges his S corporation rent for using his home.
The S corporation deducts rent paid to Herb, which is passed through
to him on his Schedule K-1. Herb must report the rental income on
Schedule E. Herb cannot deduct any expenses on the business portion
of his home (other than mortgage interest, real estate taxes, and
casualty losses).

TheTaxBook then provides the following Author’s Comment:

Author’s Comment: In the example above, assume that rather than
charge his S corporation rent, Herb sets up an accountable plan with
his employer (his S corporation) and adequately accounts for the business
portion of expenses in using his home office for the convenience
of his employer. His employer reimburses the home office expenses and
deducts them on Form 1120S, which flow through as expenses against
income on Herb’s Schedule K-1. Because it is an accountable plan,
Herb neither reports the reimbursements as income, nor is there any
need to take deductions on Schedule A that are subject to the 2% AGI
limitation.

The Author’s Comment is not referring to a rental situation. It is referring to an accountable plan. An accountable plan allows an employer to reimburse employee expenses tax free. The employer gets the deduction for the expenses and the employee gets the reimbursement tax free. There is no Schedule E to report rental income because there is no rental income or rental expenses under an accountable plan. Thus, IRC Section 280A(c)(6) does not apply.

The reason this is suggested in an Author’s Comment rather than stated as fact is because there is no IRS publication, court case, regulation, or any other citation that supports or contradicts the use of accountable plans for office in home expenses. It is an untested technique that many experienced tax practitioners have been using for years. It has also received wide coverage in trade journals and other publications that promote the use of accountable plans as a way to side step IRC Section 280A(c)(6).