The Tax Court recently affirmed an important rule—employees who are entitled to be reimbursed by an employer for their business expenses, but who fail to request reimbursement, cannot claim a deduction for their unreimbursed business expenses. Gravett v. Commissioner, T.C. Memo. 1994-156.
Example. A church agrees to reimburse a minister’s business expenses up to $5,000 for 1994. The minister receives reimbursements of business expenses totaling $3,000 and claims a deduction for an additional $1,500 of business expenses for which no reimbursement was sought or received. The minister cannot deduct the $1,500 in expenses for which a reimbursement was available from the church.
However, if a church agrees to reimburse business expenses up to a specified amount, a minister or lay employee can claim a deduction for unreimbursed expenses in excess of this amount.
Example. A church agrees to reimburse a minister’s business use of a car at a rate of 19 cents per mile for 1994. The minister is reimbursed $1,900 for 10,000 miles of business travel. The IRS allows taxpayers to use a standard mileage rate of 29 cents per mile in 1994 to compute the business use of a vehicle. The minister can claim an unreimbursed business expense deduction for the amount by which the IRS approved rate (29 cents per mile) exceeds the amount reimbursed by the church (19 cents per mile), or $1,000.
Caution! Church treasurers who are authorized to reimburse a minister’s (or lay employee’s) business expenses, but who fail to do so, may be precluding any business expense deduction.
This article originally appeared in Church Treasurer Alert, September 1994.