Beware: Firms Promoting Illegal Trucker Per Diem Programs
A motor carrier with 55 over-the-road drivers received this convoluted email explanation from their trucker 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 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 varying allowable methods.
- 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 you been approached by one of these "lodging per diem" promoters? Contact us HERE to anonymously tell us about your experience.
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About Per Diem Plus
About the Author
Mark is tax counsel for Per Diem Plus. With nearly two decades of experience advising trucking companies on per diem issues, Mark was responsible for defining the Per Diem Plus software logic rules that automatically calculates trucker per diem in accordance with IRS regulations. He also previously served as the consulting per diem tax expert for Omnitracs.
In addition to his time working with Per Diem Plus, Mark works in private practice as an Enrolled Agent at Mark Sullivan Consulting, PLLC specializing in federal tax controversy representation and consulting. He also served as the consulting and expert witness for the Federal Defenders Office and private defense counsel in financial crimes cases in multiple federal district courts. Contact Mark W. Sullivan, EA
Disclaimer: This article is for information purposes only and cannot be cited as precedent or relied upon in a tax dispute before the IRS.
Copyright 2023 Mark Sullivan Consulting, PLLC; Per Diem Plus, LLC. Per Diem Plus proprietary software is the trademark of Per Diem Plus, LLC.®
