New regs on business expenses and government contracts.

NEW REGS ON BUSINESS EXPENSES AND GOVERNMENT CONTRACTS

The tax treatment of employee business expenses under a reimbursement arrangement (or other expense allowance arrangement) is the subject of temporary and final regulations issued by the Internal Revenue Service. The new rules, which reflect changes to the tax law under the Family Support Act of 1988, prohibit an employee from claiming an adjustment to income for reimbursed employee expenses "unless the expenses are reimbursed under an arrangement that requires substantiation and any excess expenses are returned to the employer."

The IRS also released two related revenue procedures. Revenue procedure 89-66 contains the 1990 standard mileage rates for computing the deductible costs of operating a passenger automobile for business, charitable, medical or moving expenses.

Revenue procedure 89-67 relates to per diem and meal allowance expenses. The substantiation requirements will be met if travel reimbursement does not exceed the federal per diem rates for the area. The new procedure allows employers to use a simplified per diem rate of $122 in 28 high-cost areas and $85 in all other areas.

Government contracts. The IRS also has published final regulations relating to the 1986 Tax Reform Act requirement that each federal agency report certain information about all persons with whom that agency contracts. The TRA requires that the name, address, taxpayer identification number and any other information required by Treasury regulations be reported to the IRS.

The final regulations are effective retroactively to January 1, 1989, and apply to contracts entered into on or after that date. With respect to a basic or initial contract entered into before January 1, 1989, the regulations do not apply to an increase contract action treated as a new contract, if the increase occurs before April 1, 1990, or if it doesn't exceed $50,000.

This information will be used to help collect delinquent federal tax liabilities. The IRS said it "has no plans to implement requirements for additional data that would disrupt the flow of contract information."