The IRS has released TD 9625, final regs regarding the exception to the deduction limits on reimbursement or other expense allowance arrangements.

The regulations affect taxpayers who pay or receive advances, allowances or reimbursements under reimbursement or other expense allowance arrangements, and clarify the rules for these arrangements that fell under Income Tax Regulations (26 CFR, Part 1), Section 274(e)(3) of the IRC.

The proposed regulations amend those applying the 274(e)(3) exception to reimbursement and other expense allowance arrangements involving employees, clarifying that these rules apply to “reimbursement or other expense allowance arrangements between payors and employees.” Under the proposed regs, a payor may be an employer, an agent of the employer or a third party.

The proposed regulations also provide that reimbursement or expense allowance involving independent contractors, clients or customers requires that the parties expressly identify who’s subject to 274(a) and (n) limitations. If the agreement does not, limitations apply to the client if the independent contractor accounts to the client for expenses and to the independent contractor if the latter does not account to the client.

The regs became effective today.

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