Client is sole shareholder in his S-corporation, which is involved in commission sales. The corporation employs him and one other full-time individual as sales reps, and both report their travel expenses under an accountable plan. The greatest expense is travel using the SMR. The other sales rep is paid commission and the company pays his travel expenses as incurred.
In 2012 the shareholder made a very large sale, but commissions on it were not received by the company until mid-2013. Because of this delay, the shareholder/sales rep held onto his expense reports, which are legitimate travel expenses he paid from his own pocket. Almost all of the expense reports involved travel related to the big sale.
Recently the commissions on the big sale were received by the company, and now he intends to submit the expense reports to his corporation, even though many of the expenses were incurred back in mid-2012 and into mid-2013. I know there are time limits for settling up on expense advances, but in this case there were no advances issued to him. If audited is he likely to have any problems regarding the long delay between when the expenses were incurred and when they were reimbursed? There's certainly a legitimate business reason for the delay, but I wonder if IRS has any 'gotcha" rules which might trip him up.
This except from Pub 463 causes me some concern, ESPECIALLY THE SECOND BULLET POINT, but it is couched in some pretty vague language:
Reasonable period of time.
The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
--> You receive an advance within 30 days of the time you have an expense.
--> You adequately account for your expenses within 60 days after they were paid or incurred.
--> You return any excess reimbursement within 120 days after the expense was paid or incurred.
--> You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
In 2012 the shareholder made a very large sale, but commissions on it were not received by the company until mid-2013. Because of this delay, the shareholder/sales rep held onto his expense reports, which are legitimate travel expenses he paid from his own pocket. Almost all of the expense reports involved travel related to the big sale.
Recently the commissions on the big sale were received by the company, and now he intends to submit the expense reports to his corporation, even though many of the expenses were incurred back in mid-2012 and into mid-2013. I know there are time limits for settling up on expense advances, but in this case there were no advances issued to him. If audited is he likely to have any problems regarding the long delay between when the expenses were incurred and when they were reimbursed? There's certainly a legitimate business reason for the delay, but I wonder if IRS has any 'gotcha" rules which might trip him up.
This except from Pub 463 causes me some concern, ESPECIALLY THE SECOND BULLET POINT, but it is couched in some pretty vague language:
Reasonable period of time.
The definition of reasonable period of time depends on the facts and circumstances of your situation. However, regardless of the facts and circumstances of your situation, actions that take place within the times specified in the following list will be treated as taking place within a reasonable period of time.
--> You receive an advance within 30 days of the time you have an expense.
--> You adequately account for your expenses within 60 days after they were paid or incurred.
--> You return any excess reimbursement within 120 days after the expense was paid or incurred.
--> You are given a periodic statement (at least quarterly) that asks you to either return or adequately account for outstanding advances and you comply within 120 days of the statement.
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