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Unreimbursed expenses of partners.

In a private ruling that will affect CPAs in public practice as well as their clients, the IRS acknowledged a partner in a professional firm could deduct auto, travel and meal expenses on form 1040 if the partnership policy requires the expenses to be incurred personally without reimbursement (technical advice memorandum 9316003).

The partner prevailed in this ruling because partnership practice required each partner to personally incur business expenses that could not be charged to clients (such as travel to fulfill continuing professional education requirements).

However, the partner was not permitted to deduct expenses reimbursable under partnership policy but for which he or she failed to seek reimbursement.

Observation: This ruling also clarified that business expenses incurred by the partner are allowed as schedule E deductions and are not subject to the 2% miscellaneous itemized deduction threshold. This is consistent with both the 1040 schedule E instructions and previous IRS guidance allowing above-the-line treatment of interest expense incurred by a partner to acquire partnership ownership (see IRS notice 89-25).

The ruling may be of assistance to partners in several IRS districts where audit programs have asserted form 2106 employee treatment for partner expenses (thereby forcing the deductions through the 2% miscellaneous itemized deduction category).
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Aug 1, 1993
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