Wages cannot be called travel expenses after the fact.

Eugene Allen, Jr., employed truck drivers, to whom he paid wages during 1985 and 1986. He paid FICA tax on the entire amounts of the 1985 and 1986 wages, which were designated as such on the relevant W-2s and payroll tax returns.

Two years later, Allen filed a refund claim with the IRS. He claimed parts of the payments to drivers for 1985 and 1986 actually were reimbursements for travel expenses and therefore were not subject to FICA tax. The IRS sent him a refund of about $28,000.

In a later suit to recover erroneous refund, the government argued that because no contemporaneous designation of the travel expense reimbursements was made, they could not be excluded from wages and the refund had to be returned to the government.

Result: For the government. Under regulations section 31.3121(a)-1(h), to be excludable from wages, travel expense payments must be designated as such via a separate payment or statement. Although the regulation does not specifically require a contemporaneous identification, the district court, following the decision in another case (Fleet Management Services, Inc. (S.D. Ohio, 5/28/92)), infers such a requirement. Thus, the amounts are not excludable as nonwages and Allen must return the money.