The IRS has established a new cross divisional team comprised of members from the audit examination, appeals and legal departments to address the IRS's ongoing efforts to combat improper tool reimbursement plans. This issue has drawn significant IRS scrutiny for the last several years due to the aggressive marketing of such plans to employers, particularly in industries such as automotive, construction, aircraft, agriculture and others that use significant hand tools. Employers should be wary of such plans and carefully determine whether they comply with IRS regulations.


Under IRS regulations, employers are not required to reimburse their employees for business-related expenses but may do so on a tax-free basis if they meet certain requirements.1 In order for a business expense reimbursement to be tax-free to an employee, it must be made under an "accountable plan. There are three requirements to an accountable plan.


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