Beware: Firms Promoting Illegal Trucker Per Diem Programs
A motor carrier with 55 over-the-road drivers received this convoluted email explanation from their per diem solution provider who claims to have thousands of drivers covered by their plan. It was sent in response to the Per Diem Plus tax pros reviewing the plan details and advising the driver per diem program would be classified as a nonaccountable plan that produces over $415,000 of improper employee business expenses, evades over $100,000 of taxes and mischaracterizes over $1.2 million of driver wages.
"Your trucking company is using the lodging option, so your amounts are $59 for meals and $74 for lodging. Meal per diem can be awarded each day, while lodging is limited to 2 days a week. Lodging can be used but it follows some different rules. The daily total is limited to $155 which we stay well under to ensure compliance. Lodging has always been 100% deductible, that's why some people use that option. Both options (meals and incidentals only; meals and incidentals and lodging) are compliant with IRS regulations."
Copied verbatim from promotor email
Why the nonaccountable per diem program offered by this promoter serves solely to avoid or evade taxes:
The promoters of this per diem program are not licensed attorneys, enrolled agents or CPAs.
There are three types of IRS-approved per diem allowances:
A single dollar amount that includes lodging, meal and incidental expenses, and
A single dollar amount for only meal and incidental expenses
A single dollar amount for only incidental expenses
The IRS rules prohibit taxpayers from cherry picking per diem rates from each allowable method.
IRS revenue procedures do not provide rules for using per diem to substantiate the amount of lodging expenses only.
The Special Transportation Industry substantiated per diem method introduced in 2000 is exclusively for meals and incidental expenses.
Trucker per diem is subject to a 80% deductible limitation
All other meal per diem plans are subject to a 50% deductible limitation
The trucking company is using the 100% deductibility for lodging to offset the 20% non-deductible portion of meals
The trucking company is purportedly using IRS Special Transportation Industry per diem and yet is using a rate from 2015. Trucker per diem rates:
$59 until October 1, 2015
$63 until October 1, 2022
$69 since October 1, 2022
Using both Special Transportation Industry & federal per diem violates the double reimbursement or deduction provisions.
It is not reasonable for a fleet to anticipate a driver operating a vehicle with a sleeper-cab will incur lodging expenses twice weekly which are paid by the driver from wages.
There is not a single US federal appellate Circuit Court or Supreme Court case that has accepted the use of lodging per diem in trucking.
Any additional payments for lodging, meals and incidental expenses are treated as paid under a nonaccountable plan, are included in an employee’s gross income and reported as wages on Form W-2.
See IRS Rev. Proc. 2011-47.1, 3.01(1), 4.04 and 6.06; Rev. Proc. 2000-39, 2000-9 Sec. 4.04, Notice 2000-48, IRC 267(b), Tres. Reg. Sec 1.274-5(c)(2)(iii)
How much tax is being evaded?
The following analysis is based 55 over-the-road drivers working 51 weeks annually, paid a twice-weekly $74 lodging per diem and 20% effective corporate income tax rate:
$7,548 annual lodging per diem/driver ($74 x 2 x 51 weeks)
$415,140 fraudulent lodging expenses (55 drivers x $7,548)
$83,028 corporate income tax ($415,140 x 20%)
$31,758 FICA & Medicare tax ($415,140 x 7.65%)
How much income has been mischaracterized as nontaxable per diem?
Under a nonaccountable plan the per diem is included in an employee's gross wages and reported on Form W-2. The following analysis is based 55 over-the-road drivers who travel away from home 255 nights per year
$22,593 annual nonaccountable per diem/driver (($59 x 255) + ($74 x 2 x 51))
$1,242,615 mischaracterized driver income ($22,593 x 55)
Conclusion
The word salad explanation provided by the per diem solution promotor is reminiscent of listed tax transactions that have the potential for tax avoidance or evasion. Any trucking company that is considering implementing or modifying a driver per diem program needs to carefully review the IRS guidelines. If the tax professional they are using raises questions about the accuracy of the promoters claims, people should listen to their advice.
Have a tax question about IRS-compliant and accountable employee pee diem plans? Request a free consultation HERE with Mark W. Sullivan, EA
About the author
Mark W. Sullivan, EA founded Sullivan Consulting in 1998. He specializes in federal tax controversy representation, appeals and consulting on behalf of individuals, businesses, law, and accounting firms nationwide. In addition, he has served as the consulting and expert witness in numerous civil and criminal cases in multiple federal district courts.
Mark has an unlimited Enrolled Agents license and is admitted to practice before the Internal Revenue Service based on his extensive experience as a Revenue Officer in New York, NY, St. Louis, MO and Washington, D.C..
Copyright 2023 Mark Sullivan Consulting, PLLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.