Q&A #147 – Must a Form 1099 be issued for expense reimbursements paid to Board members and volunteers?
Question: I serve on the Board of Directors of a nonprofit organization that reimburses Board members and volunteers for travel and related expenses for certain organization meetings and events. Only expenses necessary to attend the meeting and event are reimbursed, and receipts are required for reimbursement. Is the organization required to send a Form 1099 to these people to report the expense reimbursements?
Answer: IRS guidance suggests that reimbursements paid to Board members and volunteers for expenses properly incurred in connection with organization functions are generally not required to be reported on Form 1099 if the expense reimbursements are made pursuant to a reimbursement arrangement that qualifies as an “accountable plan.” This is similar (but not identical) to the rules that apply to employee expense reimbursements and Form W-2 reporting.
The “accountable plan” rules are highly detailed, but in general require that:
The reimbursed expenses have a “business connection” (in other words, are properly incurred in the course of the person’s duties to the organization);
The reimbursed expenses are adequately substantiated within a reasonable period of time (for example, actual receipts or other similar contemporaneous documentation); and
Any excess reimbursement is returned within a reasonable period of time.
The relevant Treasury Regulations clarify that an accountable plan may provide reasonable advance payment of expenses expected to be incurred subject to certain requirements and set forth certain “safe harbor” time periods that are deemed to satisfy the rules. See Treas. Reg. § 1.62-2. For example, expense reimbursements that are properly substantiated and submitted to the organization within 60 days of being incurred will be treated as “substantiated within a reasonable period of time.” In general, expense reimbursements that comply with the accountable plan rules are not required to be reported by the reimbursing organization. These rules and other important details are summarized in IRS Publication 463.
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Although the accountable plan rules were developed in the context of employee expense reimbursements and Form W-2 reporting (and this Q&A will presume that the Board members and volunteers are not required to be treated as employees here), there is good reason to think the same treatment applies to most travel-related expense reimbursements made to non-employees and independent contractors pursuant to an accountable plan for Form 1099 purposes.
For example, the IRS explains in Publication 463 “[i]f the contractor adequately accounts to you for reimbursed amounts, you don’t have to report the amounts on an information return.” Therefore, following the accountable plan rules for both staff and Board members alike is highly recommended as a best practice.
Planning Tip – Timeliness is a crucial element of any expense reimbursement policy. Failure to set appropriate deadlines for the submission of reimbursement requests and contemporaneous receipts exacerbates the risk of important records being lost and opens the door to abuse and exploitation of the policy. A deadline between 2 and 4 weeks is highly recommended, but in no case should the deadline be longer than the 60-day safe harbor under the “accountable plan” rules. And failure to follow these policy deadlines in practice can set a bad precedent and potentially impact your reimbursement policy’s qualification as an accountable plan.
Please note that while employee expense reimbursements are treated similarly under the tax code, this Q&A does not address the subject of employee expense reimbursements or the circumstances under which Board members or volunteers should be treated as employees.
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