Leased Driver Meal Expense: Who Feels the Pain?
The IRS recently issued Revenue Ruling 2008-23 to help leasing and trucking companies determine which company should lose part of the deduction for leased drivers’ meal expenses.
When a trucking company leases a driver—and that driver reports an expense—three scenarios exist. Understanding the three situations will help your trucking company comply with IRS regulations.
In each of the situations covered under the ruling, the leasing company contracts with the trucking client to lease drivers in exchange for the trucking client's periodic payments. The leasing company calculates the payment amounts, including driver reimbursement for meal and incidental expenses (M&IE).
The M&IE reimbursements are not treated as compensation by either the leasing company or the trucking client. They are treated as reimbursements made under an accountable plan, nontaxable to the drivers. But the party reimbursing the driver is required to disallow a percentage of its tax deduction for meal reimbursements (generally 50 percent, but only 20 percent is disallowed if the driver is subject to U.S. Department of Transportation hours-of-service rules).
The following three situations help illustrate whether the leasing company or the trucking client will be disallowed a portion of the M&IE.
Situation 1
The driver properly substantiates the M&IE to the leasing company. The leasing company sends a bill to the trucking client for both wages and M&IE reimbursement, but does not itemize the amounts. The trucking client pays the bill and the leasing company pays the driver.
Result: The leasing company will be subject to the disallowance.
Why? The leasing company did not provide the driver’s itemized M&IE to the trucking client.
Situation 2
The second scenario is the same as the first except in this case the leasing company sends the trucking client a copy of the driver's substantiation for the M&IE along with a statement showing the amount that was included in the bill.
Result: The trucking client will be subject to the disallowance.
Why? The leasing company provided substantiation of the driver’s M&IE to the trucking client and showed that it was included in the bill.
Situation 3
This time the driver substantiates expenses to the trucking company, not the leasing company. The trucking company in turn sends a copy of expenses to the leasing company and informs the driver it has done so. The leasing company sends a bill to the trucking client for both wages and M&IE reimbursement, but does not itemize the amounts. The trucking client pays the bill. The leasing company pays the driver. Then the leasing company sends the trucking client a statement showing the amount that was included in the bill, referencing it to the copy of the driver's substantiation.
Result: The trucking client will be subject to the disallowance.
Why? The trucking client received records from the driver to substantiate the driver’s M&IE.
In the IRS world, revenue rulings are to be followed if the taxpayer's fact pattern aligns with that of the revenue ruling.
If you lease drivers, there is a good chance that one of the situations above applies to you. Your professional advisor can help you decide what steps to take next. For more information, contact Mark Ramsdell, principal-in-charge of trucking and transportation or access the IRS bulletin on Revenue Ruling 2008-23.