tax reserch memo 495454

Tax Research Memo Stusent Name Instructor Name Date Tax research memo Date:11-23-2013 To:Tax Department From: Cambro Construction Company Subject: Tax Treatment Of The Employee Reimbursement Fact: Cambro Construction Company hires union carpenters for home building. Cambro requires, as a condition of employment, that the carpenters provide and maintain various tools of their trade. Cambro pays each carpenter a set amount per hour as a “tool allowance” to cover the costs of the tools. This amount is determined quarterly based on national complied data on the costs of carpenter tools. How should this employee reimbursement be treated for tax purposes? Issue: How should this employee reimbursement be treated for tax purposes? Law and analysis: According to law Payments that are granted to the employee, being reimbursement of expenses other than expenses of travel and subsistence, which are no more than reimbursement of vouched expenses, infact these are incurred by the employee in performing the duties oduring employment, so these should not be treated as pay. Expenses incurred by Cambro Construction Company for maintenance of various tools of their trade in the form of a set amount per hour as a “tool allowance” to cover the costs of the tools,which are not treated as pay must not only be actually incurred in the performance of the duties of the employment but must also be wholly and exclusively so incurred otherwise it will be taxable under normal tax regime.. Conclusion Expenses, which are incurred by employees in maintinence of tools for performance of duties shall be allowable for tax purposes and any re-imbursement of these expenses must not be treated as pay and taxed accordingly. Citation The Internal Revenue Code, which is Title 26 of the United States Code; Decisions of the United States Tax Court, district courts, Court of Federal Claims, federal circuit courts, and the United States Supreme Court;