# Worldwide Labor Support of Mississippi, Inc. v. United States

> Court of Appeals for the Fifth Circuit · November 15, 2002 · 312 F.3d 712

URL: https://www.frixlaw.com/law-library/cases/29338

## Case

- **Full name:** WORLDWIDE LABOR SUPPORT OF MISSISSIPPI, INC., Plaintiff-Counter Defendant-Appellant, v. UNITED STATES of America, Defendant-Counter Claimant-Appellee
- **Court:** Court of Appeals for the Fifth Circuit
- **Decided:** November 15, 2002
- **Citations:** 312 F.3d 712; 29 Employee Benefits Cas. (BNA) 1810; 90 A.F.T.R.2d (RIA) 7294; 2002 U.S. App. LEXIS 23738; 2002 WL 31538789
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** King, Higginbotham, Garza
- **Cited by:** 2 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/29338

## Opinion text

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 01-60535

WORLDWIDE LABOR SUPPORT OF MISSISSIPPI, INC.,

Plaintiff-Counter Defendant-Appellant,

versus

UNITED STATES OF AMERICA,

Defendant-Counter Claimant-Appellee.

Appeal from the United States District Court
For the Southern District of Mississippi

November 15, 2002

Before KING, Chief Judge, and HIGGINBOTHAM and EMILIO M. GARZA,
Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Worldwide Labor Support of Mississippi, Inc. appeals the

district court’s grant of summary judgment to the government in the

amount of $2,019,888.77 for employment taxes, accruals of interest,

and statutory additions. The district court held that the hourly

per diem travel expense reimbursements made by Worldwide to its

non-local employees were taxable wages. W e v a c a t e t h e s u m m a r y

judgment and remand for further proceedings.

I

Worldwide provides temporary skilled labor to industrial and

commercial businesses, including Caterpillar, Inc. Facing labor
difficulties, Caterpillar from July 1994 through December 1995

leased workers from Worldwide.

Many of the workers remained at the Caterpillar job site in

Aurora, Illinois seven days a week. In addition to an hourly wage,

Worldwide paid an additional amount per hour to employees who lived

more than 100 miles from the Caterpillar site as reimbursement for

lodging, meals, and incidental expenses. While non-local employees

received two fifty-cent increases in their hourly per diem after

each of their first two months on the job, local employees to whom

no per diem was paid instead received fifty-cent raises in their

salaries. The per diem paid to non-local employees was computed on

both regular hours and overtime hours. As a result, employees who

were away from home for the same amount of time received different

per diem payments because some worked more hours than others. No

employment, unemployment, or income tax was paid on the amounts of

these reimbursements.

The government audited the 1995 federal employment tax returns

of Worldwide, determining that Worldwide was required to pay tax on

the amounts of the per diem payments and assessing additional

employment taxes. Worldwide paid $4,798.21, the amount assessed in

each quarter for one of its employees and filed a claim for a

refund of the amounts paid. The government denied the refund.

On March 2, 2000, Worldwide filed a claim in federal district

court requesting a refund of the $4,798.21. The government

counterclaimed for the unpaid balance of the assessments as to all

2
of the Worldwide employees who were paid travel expense

reimbursements in the four quarters of 1995. The district court

granted the government’s motion for summary judgment and entered

final judgment awarding the government $2,991,925.76. Worldwide

timely appealed.

II

The central question here is whether the monies paid on a

hourly per diem basis by Worldwide to its non-local employees as

reimbursed travel expenses count as "wages" which are subject to

employment taxes. These payments are not subject to employment

taxes if the payments are made subject to an "accountable plan"

pursuant to 26 U.S.C. §§ 62(a)(2)(A) and 62(c), as defined by

Treas. Reg. § 1.62-2(c).1 A plan is “accountable” when (1) it

covers only expenses with a business connection;2 (2) all expenses

are substantiated to the employer;3 and (3) the employee is

required to return to the employer any amount paid in excess of

substantiated expenses.4 If a plan does not meet these criteria, it

is considered “nonaccountable” and is subject to withholding and

employment taxes.5

1
See Treas. Reg. § 1.62-2(h)(1).

2
Id. at 1.62-2(d).

3
Id. at 1.62-2(e).
4
Id. at 1.62-2(f).
5
Id. §§ 1.62-2(c)(3)(i) & 1.62-2(c)(5).

3
The regulations also specify how per diem arrangements such as

Worldwide’s can meet these requirements. A per diem allowance for

travel expenses can meet the business connection requirement if it

is “computed on a basis similar to that used in computing the

employee’s wages or other compensation (e.g. the number of hours

worked, miles traveled, or pieces produced)” as long as “a per diem

allowance computed on that basis was commonly used in the industry

in which the employee is employed” on December 12, 1989.6

The substantiation requirement under the facts of this case is

governed by rules promulgated in Rev. Proc. 94-77, which allow the

reimbursement of travel expenses under a per diem plan in lieu of

the substantiation of each expense as would otherwise be required.

The rules provide that the amount of a per diem allowance deemed

substantiated for each calendar day “is equal to the lesser of the

per diem allowance for such day or the amount computed at the

Federal per diem rate for the locality of travel for such day.”7

Under Rev. Proc. 94-77, the returning amounts in excess of

expenses requirement is satisfied under a per diem arrangement as

long as employees are required to return allowances that “relate[]

to days of travel not substantiated . . . even though the

arrangement does not require the employee to return the portion of

6
Id. § 1.62-2(d)(3)(ii) (emphasis added).
7
Rev. Proc. 94-77, 1994-2 C.B. 825, § 4.01.

4
such an allowance that . . . exceeds the amount of the employee’s

expenses deemed substantiated.”8

III

This court reviews a grant of summary judgment de novo,

applying the same standard as the district court.9 The district

court granted the government’s motion for summary judgment because

it concluded that the hourly per diem amounts paid by Worldwide

were not made with the reasonable expectation that the employees

would actually incur travel expenses in the amounts paid as an

hourly per diem. Worldwide argues that there is a genuine issue of

material fact as to whether its plan was reasonably calculated not

to exceed the amount of expenses incurred by its employees. As the

government argues, however, under Worldwide's arrangement,

employees who should have been expected to incur similar travel

expenses received dramatically different reimbursements because

they worked more hours in the same number of days. Employees,

particularly those who worked overtime, would inevitably receive

reimbursements in excess of their reasonably anticipated expenses

under Worldwide’s scheme.

Worldwide relies on the Eleventh Circuit's decision in Trucks,

Inc. v. United States.10 In Trucks, a trucking company reimbursed

8
Id. § 7.02; see also id. § 2.07.
9
Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 257 (5th Cir.
2001).
10
234 F.3d 1340 (11th Cir. 2000).

5
truckers for expenses on a per diem rate based on the "load

revenue," which was calculated “primarily by the number of miles

driven, but is modified to account for weather, unloading and

reloading, and road conditions in the particular area.”11 Because

the truck drivers were not required to turn in receipts and

received the per diem even if they slept in their trucks instead of

paying for lodging, reimbursement amounts could greatly exceed

expenses.

In Trucks, as here, the appeal turned "on the question of

whether Trucks, Inc. reasonably anticipated and calculated the

drivers' expenses before reimbursing them."12 Reversing the district

court, the Eleventh Circuit concluded that “the focus of the

business connection test is on the employer's reasonable

expectations, not the drivers' actual expenditures. These questions

of reliability and state of mind fall within the purview of the

jury.”13 Applying that analysis to the trucking company at issue in

that case, the Trucks court held that “[t]he reasonableness of both

Trucks's calculations and anticipations is a jury question and not

appropriate for summary judgment because Trucks has produced some

evidence that its plan met the IRS requirements at the time.”14

11
Id. at 1340.

12
Id. at 1343.
13
Id. at 1343-44 (citation omitted).
14
Id. at 1344.

6
We find this reasoning persuasive. We conclude that whether

the employer reasonably anticipated and calculated its employees'

travel expenses in the course of developing its reimbursement

arrangement is essentially one of state of mind and that, so long

as the employer produces summary judgment evidence that amounts to

more than "'conclusory allegations, improbable inferences, and

unsupported speculation,'" the issues of reasonableness and state

of mind are proper questions for the jury and should not be decided

on summary judgment.15

It is of no moment that Trucks and the other cases cited by

the parties applying Treas. Reg. § 1.62-2 all involve the

transportation industry, particularly truck drivers and messengers

and couriers. Section 1.62-2 explicitly allows hourly per diem

plans to qualify, under certain circumstances, as accountable plans

without limitation as to the industry involved, despite the

government's claim at oral argument that section 1.62-2's

provisions are intended for application only to truck drivers,

pilots, and messengers. Moreover, there is no dispute in this case

that it was the custom in Worldwide's industry–the skilled

temporary labor industry–on December 12, 1989 to use hourly per

diem travel reimbursement arrangements.

15
Int’l Shortstop, Inc. v. Rally’s, Inc., 939 F.2d 1257, 1265 (5th Cir.
1991) (quoting Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.
1990)).

7
Applying the reasoning of Trucks, we observe that Worldwide

produced considerable summary judgment evidence of research it

undertook to determine its per diem rates. In particular, Worldwide

provided testimony by its president in his deposition, which

describes the investigation Worldwide undertook before setting its

rates. We leave to the jury the question of whether Worldwide’s

reimbursements were reasonably calculated not to exceed the amount

of the expenses incurred by its employees.

However, the government argues that, even if Worldwide had the

expectation that its payments were calculated to meet and not

exceed expenses, this expectation was not reasonable as a matter of

law. This is essentially what the district court found, and is the

argument urged by the dissent. It is the central issue in this

case. Worldwide attempts to answer this argument by pointing to a

compilation of 1995 travel expense reimbursement records in the

summary judgment evidence demonstrating that only 7.3% of its

weekly reimbursements exceeded the federal weekly per diem rate

and, in the aggregate for the year, its 1995 hourly per diem

payments only varied from the federal weekly per diem rate

aggregated over the same number of weeks by .76%.16

As the government and the dissent point out, the problem with

Worldwide’s argument is that the federal weekly per diem rate is

not a reasonable guide because Worldwide's own research showed that

16
This $462 rate is based on a seven-day week, so it corresponds to a $66
daily rate.

8
the expenses its employees would likely incur for lodging and meals

at local establishments was significantly less than that provided

for by the federal weekly per diem rate for the locality.

Specifically, the government argues that the federal lodging per

diem for the locality is $40 per day and the meals and incidental

expenses per diem is $26 per day, but Worldwide's research showed

(according to an information sheet it provided to new hires) that

its employees could find motel rooms for $21.00 to $32.50 per night

with up to $26 per day for meals and incidental expenses. As such,

the government argues that Worldwide's plan fails to meet the

requirements of section 1.62-2 based on Worldwide's own research.

We are not persuaded, however, that judgment as a matter of

law was appropriate. A jury could find that Worldwide reasonably

anticipated each employee would generally receive either $48, $52,

or $56 per day in travel reimbursements for working an eight-hour

day.17 This is only slightly more than the $47 per day that

Worldwide's research showed that one of its employees would be

required to spend if he stayed at the least expensive hotel in a

double-occupancy room, is slightly less than the $58.50 per day in

travel expenses Worldwide's research showed its employee would

incur if he stayed at the most expensive hotel in a single-

occupancy room, and is considerably less than the $66 per day the

federal government reimburses its employees working away from home

17
These rates are based upon an eight-hour day at a $6.00, $6.50, or
$7.00 hourly per diem rate.

9
in the same locality. Thus based on the summary judgment evidence

relied upon by the government, a jury could find that Worldwide's

reimbursement payments are reasonably calculated not to exceed the

amount of its employees’ anticipated expenses. Moreover, the

extent to which Worldwide's expectation was not reasonable because

Worldwide knew or should have known that some or even many of its

non-local employees would work overtime is quintessentially a fact

issue as to reasonableness and state of mind for the jury to decide

based on its assessment of the witness testimony and evidence

presented to it.

The government and the dissent urge that a daily per diem plan

would better meet the requirements of Treas. Reg. § 1.62-2, as

would an hourly per diem plan which did not reimburse based on

overtime hours worked. The question before us, however, is not what

plan Worldwide might have used but the conformity of the plan it

did use. Any hourly per diem arrangement will not bear a strict

logical relation to anticipated expenses that are incurred on a

daily and not hourly basis. Yet the government’s own regulations in

Treas. Reg. § 1.62-2 and Rev. Proc. 94-77 explicitly allow for

hourly per diem arrangements to qualify as accountable plans under

section 1.62-2.18 This argument seems to whistle past the

government’s own regulations.

18
See, e.g., Treas. Reg. § 1.62-2(d)(3)(ii); see also Rev. Proc. 94-77,
1994-2 C.B. 825.

10
The dissent disputes this point, arguing that flight

attendants and truck drivers incur expenses that are proportional

to the number of hours worked, but Worldwide employees did not.

This is not the case. A flight attendant who works eight hours a

day pays the same price for a hotel room as a flight attendant who

works for ten hours. Insofar as some expenses are incurred on a

daily–as opposed to hourly–basis, an hourly per diem arrangement

will not perfectly correspond with these expenses. Given that the

regulations permit hourly per diem arrangements, the question

cannot be whether the per diem perfectly corresponds to the

expenses incurred but rather whether it is reasonably calculated to

reimburse employees for their expenses. We believe that there is

enough summary judgment evidence here to permit the jury to

determine that question.

The case relied upon by the government and the dissent, the

Ninth Circuit's decision in Shotgun Delivery, Inc. v. United

States,19 can be distinguished from the case before us. In Shotgun,

a messenger and courier service employed drivers who used their own

vehicles to make pick-ups and deliveries. Shotgun billed its

customers based primarily on the mileage from the pick-up to the

delivery location, which did not necessarily reflect the actual

driving distance because drivers often "doubled up," carrying more

19
269 F.3d 969 (9th Cir. 2001).

11
than one customer's package at a time.20 Shotgun also charged

surcharges for waiting time, rush delivery, and excessive weight,

further weakening any direct relationship between delivery charges

and miles driven in making the deliveries.21

Shotgun paid its drivers a commission basis, amounting to 40%

of the delivery charges for the jobs they completed, but issued two

checks in order to avoid employment taxes:

The first check (the "wage check") compensated the
drivers, at the minimum wage, for the hours they worked.
Shotgun withheld the appropriate employment taxes from
the wage checks. The second check (the "mileage check")
was issued in an amount equal to 40% of the receivables
on that drivers' deliveries less the amount paid via the
wage check. In other words, the two checks together
always amounted to 40% of the delivery charges
attributable to that driver.22

Shotgun did not deduct employment taxes from the mileage checks or

pay employment taxes on these amounts because it argued its

reimbursement arrangement was an accountable plan under section

1.62-2.

The Ninth Circuit distinguished Trucks, noting that "Trucks,

Inc. allotted a uniform 6% of revenues on each load to reimburse

driver expenses, whereas the percentage Shotgun paid as

reimbursement fluctuated, with its 40% commission going first to

cover wages (paid at the minimum allowed by law), and then to a

20
Id. at 970.
21
Id.
22
Id. at 971.

12
variable remainder (i.e. as much as possible) paid as

reimbursement."23 The court concluded that "the evidence suggests

that the plan's primary purpose was to treat the least amount

possible of the drivers' 40% commission as taxable wages."24

Like Trucks, the instant case is distinguishable from Shotgun.

Although there were variations among the per diem reimbursements

received by individual Worldwide employees on any given day of non-

local work, particularly for those who worked overtime, Worldwide's

arrangement did not admit of such a wide variance as Shotgun's

system plainly condoned. In Shotgun, there was evidence that

Shotgun's arrangement was designed primarily to hide taxable wages,

a central target of section 1.62-2. The government makes no

contention that Worldwide's plan was designed primarily for tax

avoidance.

IV

The government argues alternatively that a portion of the

payments under Worldwide's arrangement fails to meet the deemed

substantiated requirements of Rev. Proc. 94-77 for another reason:

Because Worldwide computed its per diem payments on the basis of

hours worked, under section 4.02(5) of Rev. Proc. 94-77 the per

diem is treated as a "meals only" per diem allowance and can be

deemed substantiated only up to the amount of the Federal M & IE

23
Id. at 972-73 (citation omitted).
24
Id.

13
rate, which was $26 per day during 1995 in Aurora, Illinois. Thus,

the government argues that, even if Worldwide's plan were to

survive the other tests, only $26 per day could be deemed

substantiated in satisfaction of Treas. Reg. § 1.62-2(e) for which

Worldwide would not owe employment taxes. Worldwide responds that

the government misreads section 4.02 of Rev. Proc. 94-77 because

reading it to require all hourly per diem arrangements to be

limited to "meals only" would render the industry custom exception

in section 3.03(2) of Rev. Proc. 94-77 for hourly per diem plans

void. We agree with the government.

First, the government does not contend that Worldwide's

arrangement did not qualify as an accountable plan simply because

some of the employees' reimbursements exceeded those available

under the federal rate. Nor could it make such a claim given the

express provisions of Treas. Reg. § 1.62-2.25 Worldwide will owe

employment taxes on those amounts which exceed the federal rate,

but this will not undermine a finding in favor of Worldwide as to

the entire arrangement's eligibility as an accountable plan.26

Second, as a matter of a plain reading of Rev. Proc. 94-77,

the government has the better of this argument. Treas. Reg. §

1.62-2(c) requires that the business connection test,27

25
See Treas. Reg. §§ 1.62-2(c)(1), 1.62-2(d)(2), 1.62-2(i).
26
See id. § 1.62-2(h)(2)(i)(B); Rev. Proc. 94-77, 1994-2 C.B. 825, §
8.01.
27
Treas. Reg. § 1.62-2(d).

14
substantiation requirement,28 and return of amounts in excess of

expense requirement29 be met for a plan to qualify under § 162.2.

An hourly per diem plan can satisfy the business connection test

"only if, on December 12, 1989, ... a per diem allowance computed

on that basis was commonly used in the industry in which the

employee is employed."30 The Commissioner has authority to prescribe

rules to determine to what extent an hourly per diem plan satisfies

the substantiation and return of excess requirements.31

In exercising this power, the Commissioner promulgated Rev.

Proc. 94-77. Section 3.03(2) provides that a plan which is

computed on a basis such as hours worked is not a “per diem

allowance” unless it meets the industry custom exception. As

stated above, this is already a requirement under Treas. Reg. §

1.62-2(d)(3)(ii) for such a plan to meet the business connection

test.

In addition, Section 4 of Rev. Proc. 94-77 then more

specifically provides the rules under which reimbursements under a

per diem plan can be deemed substantiated to meet the

substantiation requirement of sections 1.62-2(e). Section 4.02

specifically limits per diem arrangements that are "computed on a

28
Treas. Reg. § 1.62-2(e).
29
Treas. Reg. § 1.62-2(f).
30
Treas. Reg. § 1.62-2(d)(3)(ii).
31
Treas. Reg. §§ 1.62-2(e)(2), 1.62-2(f)(2).

15
basis similar to that used in computing the employee's wages or

other compensation (e.g., the number of hours worked, miles

traveled, or pieces produced)" to a "meals only per diem

allowance." A meals only per diem allowance is capped at the

Federal M & IE rate by section 4.02.

In so doing, the revenue procedure is not contrary to any

express provision of or allowance under Treas. Reg. § 1.62-2.32

Section 1.62-2 imposes several requirements for hourly per diem

plans to be eligible for accountable plan status, including the

business connection test which can be satisfied by the industry

custom exception under section 1.62-2(d)(3)(ii). But § 1.62-2

leaves to the Commissioner how such plans may be excepted from the

usual substantiation and returning amounts in excess of expenses

requirements.

Section 3.03(2) simply incorporates the additional requirement

of Treas. Reg. § 1.62-2(d)(3)(ii) for all three prongs of the

accountable plan test as it applies to hourly per diem plans. That

section 3.03(2)(b) also includes the industry custom exception to

meet this requirement does not mean that section 3.03(2)(b)

excludes the meals only limitation of section 4.02(5) from any

hourly per diem plan that meets the industry custom exception.

That exception may be used to meet a threshold requirement under

32
See Clark v. Modern Group Ltd., 9 F.3d 321, 335 (3d Cir. 1993)
("Treasury regulations take precedence over contrary revenue procedures because
the latter are intended primarily as a guide to taxpayers.") (citing cases).

16
section 3.03(2), not as a free pass to obtaining accountable plan

status when the hourly per diem plan does not otherwise meet the

provisions of Treas. Reg. §§ 1.62-2(e) and 1.62-2(f) requiring

substantiation and returning amounts in excess of expenses, both of

which Worldwide's employees admittedly did not do. Indeed,

Worldwide's reading would render section 4.02(5) of Rev. Proc. 94-

77 void, because the substantiation and returning amounts in excess

of expenses requirements do not even come into play for any hourly

per diem plan that does not first meet the threshold requirement of

Treas. Reg. § 1.62-2(d)(3)(ii) and section 3.03(2) of Rev. Proc.

94-77.33

In sum, if an hourly per diem plan can meet the requirements

of Treas. Reg. §§ 1.62-2(e) and 1.62-2(f) without resort to the

excepting provisions of Rev. Proc. 94-77, the plan can qualify as

an accountable plan while reimbursing lodging as well as meals and

incidental expenses. The Commissioner, by promulgating Rev. Proc.

94-77, has not contradicted Treas. Reg. § 1.62-2 by limiting the

exceptions to the usual substantiation and returning amounts in

excess of expenses requirements therein--which he is permitted to

provide by rule--to per diem plans covering only meals and

incidental expenses.

33
It is worth noting that the only hourly per diem described in Rev.
Proc. 94-77 is a meals only per diem allowance. See Rev. Proc. 94-77, 1994-2
C.B. 825, § 3.03(1).

17
Worldwide argues, in the alternative, that section 4.02(5) of

Rev. Proc. 94-77 is not binding on this court. We reject this

argument on two grounds. First, Worldwide could not satisfy the

substantiation and returning amounts in excess of expenses

requirements without the provisions of Rev. Proc. 94-77. Second,

the revenue procedure is not contrary to the governing regulation,

as we have just discussed, and so is not rendered non-binding under

the facts of this case by virtue of section 1.62-2. In short,

Worldwide must accept Rev. Proc. 94-77 and its limitations in its

entirety or fail altogether in its quest for tax-exempt status for

its travel expense reimbursement payments.

The government urges that we remand to the district court for

consideration of what portion of Worldwide's payments qualified

under Treas. Reg. § 1.62-2(e) and Rev. Proc. 94-77, presumably on

summary judgment, along with two additional charges against certain

portions of Worldwide's payments. We conclude, however, that

consideration of these matters are proper for the district court to

address pretrial, to the extent they may be resolved as a matter of

law, or by the jury at trial. We will not, however, without more,

remand with instructions that these issues be addressed on a

hypothetical motion for summary judgment.

V

18
We vacate the district court’s grant of summary judgment to

the government and remand for further proceedings consistent with

this opinion.34

VACATED AND REMANDED.

34
With our decision to vacate the district court's judgment, we need not
address Worldwide's challenge to the penalty assessed against it.

19
EMILIO M. GARZA, Circuit Judge, dissenting:

This case requires us to determine whether the purported

reimbursement payments made by Worldwide Labor Support Services

(“Worldwide”) to its temporary employees for meals, lodging and

other incidental expenses constituted wages for which federal

employment taxes must be paid. In order to avoid the imposition of

employment taxes, Worldwide’s reimbursement plan must qualify as an

“accountable plan” pursuant to the requirements of 26 C.F.R. §

1.62-2(d) - (f). As the majority opinion clearly explains, the

process of determining whether a plan meets these requirements is

complex, involving several distinct inquiries. For purposes of

this appeal, however, the critical issue is whether Worldwide’s

plan was reasonably calculated not to exceed the amount of expenses

or anticipated expenses actually incurred by its employees. The

majority opinion concludes that Worldwide has established a genuine

issue of material fact as to whether its plan was reasonably

calculated to reimburse actual or anticipated expenses. In

contrast to the majority opinion, I believe Worldwide has failed to

make such a showing because their reimbursement scheme bares no

-20-
logical relationship to the actual or anticipated expenses of

Worldwide’s employees.35

Worldwide’s method of calculating reimbursement expenses

resulted in differing amounts of compensation to employees who were

working on the same site and likely incurring similar expenses.

Worldwide’s reimbursement plan for the Caterpillar site initially

compensated temporary employees living more than 100 miles from the

plant $6.00 per hour worked for meals, lodging and other incidental

expenses. In determining the reimbursement amount for each

employee, Worldwide included both regular and overtime hours. In

addition, an employee who worked at the Caterpillar site for more

than one month received a fifty-cent increase in hourly

reimbursements. After two months at the site, Worldwide gave its

employees an additional fifty-cent increase, raising the hourly

reimbursement rate to $7.00. Thus, two employees working at the

Caterpillar site could receive substantially different

reimbursement amounts depending on the total number of hours each

employee worked during the week, as well as the amount of time they

had been on the site. As a result, Worldwide reimbursed many

employees for amounts greater than their own research indicated was

the maximum amount of anticipated expenses each employee would

35
It is important to note that even though this case comes to us on summary
judgment and therefore the record must be viewed in the light most favorable to
the non-movant, Worldwide, as a taxpayer, still bears the burden of proof as to
whether the government’s tax assessment was erroneous, as well as the amount of
the refund due from the government. Brown v. United States, 890 F.3d 1329, 1334
(5th Cir. 1989).

-21-
incur. Given this fact, no rational jury could find that

Worldwide’s plan was reasonably calculated not to reimburse its

employees for amounts in excess of actual or anticipated expenses.

Worldwide has not presented any evidence that these

disparities reflected differences in the actual expenses of its

employees at the Caterpillar site. Instead, the evidence suggests

that employees incurred similar lodging and meal expenses

regardless of the number of hours worked. Worldwide’s employees

paid for lodging by night, not by hour. Thus, an employee who

worked forty hours per week, but stayed in a hotel for six nights,

would incur identical costs as an employee who worked sixty hours

that week, but stayed in the same hotel for six nights. As such,

I do not believe that any rational trier of fact could have found

that Worldwide’s plan was reasonably calculated not to exceed the

actual expenses of its employees.

Worldwide’s employment records indicate that the actual

amounts Worldwide reimbursed frequently exceeded the amount of

expenses Worldwide anticipated each employee would incur.

Worldwide estimated that its employees would spend a maximum of

$58.50 per day or $409.50 per week on meals and lodging.

Worldwide’s payment records for the period ending August 6, 1995,

reveal that it paid sixty-six workers more than the amount their

research suggested was the maximum weekly expenses of their

employees. Thus, under Worldwide’s plan, in one pay period, about

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one-quarter of their workforce was reimbursed for more than what

Worldwide anticipated was the maximum amount of weekly expenses.

Moreover, several of Worldwide’s employees received reimbursement

payments that far exceeded Worldwide’s maximum estimates of $409.50

per week. For instance, Quentin Lee received $609.00 in

reimbursements during the August 6 pay period and Danny McGhee

received $563.50. Again, given this evidence, no reasonable jury

could find that Worldwide’s plan was reasonably calculated to

compensate its employees for their anticipated expenses.36

The majority opinion attempts to counter this evidence by

pointing out that an employee working eight hours per day would be

36
Worldwide relies heavily on the fact that only seven percent of its
reimbursement payments exceeded the federal per diem rate of $66. As the
majority opinion concedes, however, Worldwide’s reliance on the federal rate is
not availing because its own research indicated that the anticipated expenses of
its employees would be below the federal rate for the locality. Revenue
Procedure 94-77, which defines a “per diem allowance” provides:

The term “per diem allowance” means a payment under a reimbursement or
other expense allowance arrangement that meets the requirements specified
in § 1.62-2(c)(1) and that is
(1) paid with respect to ordinary and necessary business expenses
incurred, or which the payor reasonably anticipates will be
incurred, by an employee for lodging, meal, and/or incidental
expenses for travel away from home in connection with the
performance of services as an employee of the employer,
(2) reasonably calculated not to exceed the amount of the expenses
or the anticipated expenses, and
(3) paid at the applicable Federal per diem rate, a flat rate or
stated schedule, or in accordance with any other Service-specified
rate or schedule.

Rev. Proc. 94-77 § 3.01. Under this regulation, the reimbursement payment must
be reasonably calculated not to exceed actual or anticipated expenses and must
be paid at the federal per diem rate or at a flat rate or stated schedule. Thus,
even if Worldwide reimbursed its employees at the applicable federal rate,
because its research indicated that its employee’s actual and anticipated
expenses were significantly lower, its payments would not be reasonably
calculated to reimburse the amount of its employees’ expenses or anticipated
expenses under the regulations.

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reimbursed for an amount within Worldwide’s anticipated expense

range, regardless of whether that employee was paid $6.00, $6.50,

or $7.00 per hour. Thus, they contend that a rational jury could

find that Worldwide’s plan was reasonably calculated to reimburse

its employees’ anticipated expenses. The majority opinion is

correct that a jury could find that reimbursement payments paid to

employees who did not work any overtime hours fell within

Worldwide’s anticipated expense range. The problem with the

majority’s argument, however, is that many of Worldwide’s employees

regularly worked overtime, exceeding the maximum amount of meals

and lodging expenses Worldwide anticipated its employees would

incur as a result. Because Worldwide’s employees regularly worked

overtime hours, the fact that any payments fell within Worldwide’s

anticipated expense range was merely coincidental. A rational jury

could not ignore these additional overtime reimbursement payments

in determining whether Worldwide’s plan was reasonably calculated

to reimburse actual or anticipated expenses. Moreover, the

rational jury could not ignore the fact that Worldwide regularly

reimbursed its employees for more than what its own research

indicated was the maximum amount of expenses per week because it

included overtime hours in those reimbursement calculations.

The majority opinion finds that, if it were to accept the

government’s argument, no hourly per diem reimbursement arrangement

could qualify as an accountable plan under the regulations. This

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result seems unacceptable, since the regulations explicitly

authorize such arrangements. The majority opinion, however,

misinterprets the government’s position. The government does not

argue, as the majority contends, that an hourly per diem

reimbursement method must exactly reimburse employees for expenses.

Instead, the government merely contends that such an arrangement

must be reasonably calculated to reimburse employees only for

actual or anticipated expenses. In other words, the plan need not

always reimburse employees for the expenses they actually incurred,

but it must be structured in such a way so that there is some

probability that it will do so.

In certain contexts, an hourly per diem plan such as

Worldwide’s could be reasonably calculated to reimburse only actual

or anticipated expenses. For instance, the I.R.S.’s revenue

procedures cite the example of a pilot or flight attendant who is

traveling away from home. See Rev. Proc. 94-77 § 3.03(1). In that

context, it is reasonable to conclude that the more hours a flight

attendant or pilot works, the longer they will be away from home,

and the more reimbursable expenses they will incur for lodging and

meals. Thus, there is a logical relationship between the number of

hours worked by a pilot or flight attendant and the amount of

expenses incurred.37

37
The majority opinion attempts to undermine this reasoning by pointing
out that “[a] flight attendant who works eight hours a day pays the same price
for a hotel room as a flight attendant who works for ten hours.” Thus, the
flight attendants’ hourly per diem arrangement will “not perfectly correspond”

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In contrast, Worldwide has not established any relationship

between the hours worked by its employees and the expenses they

incurred. As the majority opinion concedes, Worldwide’s plan

resulted in employees who were away from home for the same amount

of time receiving different per diem payments. Because Worldwide’s

employees were away from home for the same period of time,

regardless of whether they worked eight, ten, or twelve hours a

day, they incurred roughly the same amount of reimbursable

expenses. Nevertheless, they received different reimbursement

amounts. Thus, Worldwide’s plan, unlike the hourly per diem

payments to pilots or flight attendants, was not reasonably

calculated to reimburse Worldwide’s employees for the expenses they

incurred.

The preceding point is critical because the majority opinion

relies heavily on the Eleventh Circuit’s decision in Trucks, Inc.

v. United States, 234 F.3d 1340 (11th Cir. 2000), to support its

decision. In Trucks, the plan at issue reimbursed truckers for

their expenses on a per diem rate based on the “load revenue” the

drivers earned. The load revenue was calculated primarily by the

number of miles driven, but also took additional factors such as

to the employees’ expenses. The majority opinion appears to overlook that the
regulations do not require a perfect correlation. They require only that an
employer’s reimbursement system be reasonably calculated not to exceed an
employee’s expenses. In the majority opinion’s hypothetical, the two flight
attendants might incur the same expenses for lodging, but would not necessarily
incur the same charges for meals. As a result, it might make sense to reimburse
them differently. There is certainly a reasonable relationship between the
flight attendants’ hours and reimbursable expenses.

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weather, unloading and reloading time, and road conditions into

account. Id. at 1341. Thus, load revenue roughly approximated the

amount of time a truck driver would be driving. The greater the

load revenue earned by a truck driver, the more time he would be

away from home and the more expenses for meals and lodging he would

incur. Given this fact, the court concluded that Trucks had

provided sufficient evidence that its plan was reasonably

calculated not to exceed the anticipated expenses of its employees

to preclude summary judgment.

Worldwide’s reimbursement scheme, however, is distinct from

the one the court dealt with in Trucks because Worldwide’s

employees’ expenses did not increase with each additional hour

worked. Rather, I find the Ninth Circuit’s decision in Shotgun

Delivery, Inc. v. United States, 269 F.3d 969 (9th Cir. 2001),

persuasive in this instance. Shotgun involved a messenger company

whose drivers used their own vehicles to make pick-ups and

deliveries. Shotgun’s reimbursement scheme paid its drivers a

forty percent commission on each delivery in two checks. The first

check compensated the drivers for the number of hours they worked.

The amount paid for hourly wages then was deducted from the forty

percent commission and the remainder was included in a second check

which purported to cover mileage expenses. As a result of this

plan, the lesser number of hours each employee worked to make his

or her deliveries resulted in a greater amount of tax-free

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compensation. The court concluded that Shotgun’s plan did not

qualify as an “accountable plan” because the “key determinant

driving the [reimbursement] allocations [was] hours worked, a

factor that [bore] little, if any, correlation with mileage

expenses.” Id. at 973. The court went on to state that “Shotgun

drivers doing identical routes with identical delivery charges

could receive additional compensation distributions that differed

according to driving time.” Id.

Similar to Shotgun’s plan, Worldwide’s method of reimbursing

employees bears little, if any, correlation to the actual expenses

its employees incurred.38 Moreover, underlying the Shotgun decision

was evidence that Shotgun was attempting to encourage certain types

of employee behavior at the expense of the government. In essence,

a Shotgun employee who made faster deliveries, thereby working

fewer hours, would receive a greater portion of his or her check

tax free. Here, Worldwide’s workers have a similar incentive to

work more overtime hours so as to receive larger, tax-free

reimbursements. Because these amounts often exceed their

anticipated daily expenses, Worldwide’s employees essentially

38
The majority opinion asserts that Shotgun is distinguishable from this
case because Worldwide’s arrangement “did not admit of such a wide variance as
Shotgun’s system plainly condoned.” Yet, Worldwide’s employment records
establish that some employees received more than double the amount of
reimbursement payments of other similarly situated employees. Moreover,
Worldwide paid several employees in excess of one hundred dollars per week over
the sum they calculated to be the maximum amount of weekly expenses. Given these
facts, it seems difficult to believe that Worldwide’s plan did not condone as
wide of a variance in reimbursement payments as the one at issue in Shotgun.

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receive a tax-free bonus if they work overtime. Thus, Worldwide’s

particular reimbursement method, like the one in Shotgun,

encourages its employees to engage in conduct beneficial to the

company.

Given the evidence presented, no rational jury could find that

Worldwide’s plan was reasonably calculated to reimbursement its

employees for their actual or anticipated expenses. Thus, I

believe the district court correctly found that Worldwide’s

reimbursement plan did not qualify as “accountable plan” under the

regulations. For the foregoing reasons, I would AFFIRM the

judgment of the district court.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/29338. Public record. Not legal advice.