Fiesta fiasco: Duck suits dodging federal tax laws
The shenanigans that go on at the state university in Eugene never fail to amaze. From the surprisingly excellent faculty watchdog blog UO Matters, today we get the long list of administrative types who, with their spouses or significant others, were offered free rides to the recent Tostitos Fiesta Bowl football weekend.
Amazingly, the recipients were told that the university would pay their and their spouses' way to the game, which is held in Arizona, and that the reimbursement of the administrators for all of the couples' expenses would be tax-free:
It's hard to read the shabby pdf file that the university produced when the blogger asked for it, but here's the sentence that jumped out at us immediately:
As a member of the official delegation, you and your spouse or domestic partner may have your travel, lodging, meal and ticket expenses paid or reimbursed, and such payment or reimbursement has no tax consequences.
Wow. Just wow. Even if you could come up with a business reason that constitutes the primary purpose for sending this many administrators to the game and party weekend -- a proposition that is dubious, to say the least -- excluding the amounts paid for the travel of their spouses and spousal equivalents is contrary to the tax laws. It's so contrary, in fact, that to an enterprising IRS agent, it could constitute fraud.
As passed by Congress, the law on the spouses really could not be clearer. Here is section 274(m)(3) of the Internal Revenue Code (26 U.S.C.):
No deduction shall be allowed under this chapter (other than section 217 [relating to moving expenses]) for travel expenses paid or incurred with respect to a spouse, dependent, or other individual accompanying the taxpayer (or an officer or employee of the taxpayer) on business travel, unless—
(A) the spouse, dependent, or other individual is an employee of the taxpayer,
(B) the travel of the spouse, dependent, or other individual is for a bona fide business purpose, and
(C) such expenses would otherwise be deductible by the spouse, dependent, or other individual.
Now, as a few hardy readers have pointed out on an earlier version of this post, an IRS regulation, Reg. sec. 1.132-5(t), twists the law around a bit. The regulation states that if the employer's deduction is disallowed by IRC sec. 274(m)(3), just quoted, then the employee merely has to show a "bona fide business purpose" for the spouse's "presence on the business trip" in order to exclude the reimbursement. But the proposition that there was a "business purpose" for sending the spouses to the party weekend in Arizona is ludicrous.
We dare UC Nike to show the world the professional opinion they got that the spousal reimbursements are not taxable. Don't they teach tax law and accounting down there? Not by example, apparently.
Will the IRS do anything about this? Who knows? But if we were (a) one of the people who took the trip and got reimbursed, or (b) the payroll people at the university who aren't going to withhold any taxes on those reimbursements, we'd be extremely nervous.
[This post was revised late this afternoon, from a version posted earlier this afternoon, to address the readers' point.]