Internal Revenue Bulletin 2012-37 (PDF rendition): IRS Revenue Procedures

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Bulletin No. 201
2-37
September 10, 20
12
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
EMPLOYMENT TAX
Rev. Rul. 2012–25, page 337.
Wage recharacterization.This ruling provides guidance for
employers under section 62(c) of the Code and the applica-
ble regulations. The ruling clarifies that an arrangement that
recharacterizes taxable wages as nontaxable reimbursements
or allowances does not satisfy the business connection require-
ment of the accountable plan rules under section 62(c) and the
applicable regulations. Specifically, this ruling includes four sit-
uations. Three of the situations illustrate arrangements that im-
permissibly recharacterize wages, such that the arrangements
are not accountable plans. The fourth situation illustrates an ar-
rangement that does not impermissibly recharacterize wages,
where an employer prospectively alters its compensation struc-
ture to include a reimbursement arrangement.
ADMINISTRATIVE
Rev. Proc. 2012–35, page 341.
This procedure provides instructions and information on the In-
ternal Revenue Service’s letter-forwarding program. Rev. Proc.
94–22 modified and superseded.
Finding Lists begin on page ii.

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Introduction
The Internal Revenue Bulletin is the authoritative instrument of
the Commissioner of Internal Revenue for announcing official
rulings and procedures of the Internal Revenue Service and for
publishing Treasury Decisions, Executive Orders, Tax Conven-
tions, legislation, court decisions, and other items of general
interest. It is published weekly and may be obtained from the
Superintendent of Documents on a subscription basis. Bulletin
contents are compiled semiannually into Cumulative Bulletins,
which are sold on a single-copy basis.
It is the policy of the Service to publish in the Bulletin all sub-
stantive rulings necessary to promote a uniform application of
the tax laws, including all rulings that supersede, revoke, mod-
ify, or amend any of those previously published in the Bulletin.
All published rulings apply retroactively unless otherwise indi-
cated. Procedures relating solely to matters of internal man-
agement are not published; however, statements of internal
practices and procedures that affect the rights and duties of
taxpayers are published.
Revenue rulings represent the conclusions of the Service on the
application of the law to the pivotal facts stated in the revenue
ruling. In those based on positions taken in rulings to taxpayers
or technical advice to Service field offices, identifying details
and information of a confidential nature are deleted to prevent
unwarranted invasions of privacy and to comply with statutory
requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned
against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—19
86 Code.
This part i
ncludes rulings and decisions based on provisions of
the Intern
al Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B, Leg-
islation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative Rul-
ings. Bank Secrecy Act Administrative Rulings are issued by
the Department of the Treasury’s Office of the Assistant Secre-
tary (Enforcement).
Part IV
.—Items of General Interest.
This par
t includes notices of proposed rulemakings, disbar-
ment an
d suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.
The c
ontents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S.Government Printing Office, Washington, DC 20402.
September 10, 20122012–37 I.R.B.

Part I. Rulings
and Decisions Under the Internal Revenue Code
of 1986
Section 62.—A
djusted
Gross Income Defined
An arrangement that recharacterizes taxable wages
as nontaxable reimbursements or allowances does not
satisfy the business connection requirement of the ac-
countable plan rules under section 62(c) and the ap-
plicable regulations. See Rev. Rul. 2012-25, page
337.
26 CFR 1.62–2: Reimbursements and other expense
allowance arrangements.
Wage recharacterization.This ruling
provides guidance for employers under
section 62(c) of the Code and the appli-
cable regulations. The ruling clarifies
that an arrangement that recharacterizes
taxable wages as nontaxable reimburse-
ments or allowances does not satisfy the
business connection requirement of the
accountable plan rules under section 62(c)
and the applicable regulations. Specifi-
cally, this ruling includes four situations.
Three of the situations illustrate arrange-
ments that impermissibly recharacterize
wages, such that the arrangements are
not accountable plans. The fourth situa-
tion illustrates an arrangement that does
not impermissibly recharacterize wages,
where an employer prospectively alters
its compensation structure to include a
reimbursement arrangement.
Rev. Rul. 2012–25
ISSUE
Whether an arrangement that rechar-
acterizes taxable wages as nontaxable re-
imbursements or allowances satisfies the
business connection requirement of the ac-
countable plan rules under § 62(c) and the
applicable regulations.
FACTS
Situation 1.
Emp
loyer A, a company contracting
wi
th cable providers, employs technicians
to
install cable television systems at res-
id
ential locations on behalf of different
ca
ble providers. Employee technicians are
re
quired to provide the tools and equip-
me
nt necessary to complete the various
installation
jobs to which they are as-
signed.
Employer A com
pensates its employees
on an hourly ba
sis, which takes into ac-
count the fact
that technicians are required
to provide th
eir own tools and equipment.
Employer A de
cides to begin reimbursing
its technici
ans for their tool and equipment
expenses thr
ough a tool reimbursement ar-
rangement (
tool plan).
Under Employ
er A’s tool plan, a techni-
cian provid
es Employer A with an amount
equivalent
to the technician’s tool and
equipment e
xpenses incurred in connec-
tion with pr
oviding services to Employer
A. Employe
r A takes the technician’s to-
tal expens
es for the year and divides the
total amou
nt by the number of hours a
technicia
n is expected to work over the
course of
a year to arrive at an hourly tool
rate. Onc
e Employer A has determined
the hourl
y tool rate amount for a tech-
nician, i
t pays the technician a reduced
hourly co
mpensation rate and an hourly
tool rate
. Employer A treats the reduced
hourly c
ompensation as taxable wages.
Employe
r A treats the hourly tool rate as
a nontax
able reimbursement. The hourly
tool rat
e plus the reduced hourly com-
pensat
ion rate approximately equal the
pre-to
ol plan compensation rate. The tool
plan tr
acks the hourly tool rate up to the
amount
of substantiated tool and equip-
ment ex
penses. Once a technician has
recei
ved tool plan payments for the total
amoun
t of his or her tool and equipment
expen
ses, Employer A ceases paying the
techn
ician an hourly tool rate but increases
the te
chnician’s hourlycompensation to
the p
re-tool plan hourly compensation
rate
.
Situ
ation 2.
Empl
oyer B, a staffing contractor, em-
ploy
s nurses and provides their services to
hosp
itals throughout the country for short-
term
assignments. Employer B compen-
sate
s all of the nurses on an hourly basis
and
the hourly compensation amount does
not
vary depending on whether the hospital
is l
ocated away from the assigned nurse’s
tax
home.
When Employer
B sends nurses on
assignment to
hospitals that require them
to travel away
from their tax home and
incur deduct
ible expenses in connection
with Employe
r B’s business, Employer
B treats a por
tion of the nurses’ hourly
compensatio
n as a nontaxableper diemal-
lowance for
lodging, meals, and incidental
expenses un
der Employer B’sper diem
plan; Emplo
yer B treats the remaining
portion of t
he nurses’ hourly compensa-
tion as taxa
ble wages. When Employer
B sends the
nurses on assignment to hos-
pitals wit
hin commuting distance of their
tax home, E
mployer B treats all of the
nurses’ co
mpensation as taxable wages.
In each ca
se, the nurses receive the same
total com
pensation per hour.
Situatio
n3.
Employer
C, a construction firm, em-
ploys wor
kers to build commercial build-
ings thro
ughout a major metropolitan area.
As part of
their duties, some of Employer
C’s work
ers are required to travel between
constru
ction sites or otherwise use their
persona
l vehicles for business purposes.
These wo
rkers incur deductible business
expense
s in operating their personal vehi-
cles in
connection with their employment
with Em
ployer C. Employer C compen-
sates a
ll of its workers for their services on
an hour
ly basis, which Employer C treats
as taxa
ble wages. Employer C also pays
all of
its workers, including those who are
not re
quired to travel or otherwise use their
perso
nal vehicles for Employer C’s busi-
ness,
a flat amount per pay period that Em-
ploye
r C treats as a nontaxable mileage re-
imbu
rsement.
Situ
ation 4.
Empl
oyer D, a cleaning services com-
pany
, employs cleaning professionals to
perf
orm house cleaning services for Em-
ploy
er D’s clients. Employee cleaning
prof
essionals are required to provide the
clea
ning products and equipment neces-
sar
y to complete the cleaning service jobs
to w
hich they are assigned.
Emp
loyer D compensates its employ-
ees
on an hourly basis, which takes into
acc
ount that employees are required to
2012–37 I.R.B.337September 10, 2012

provide their own cleaning products and
equipment. Employer D decides to be-
gin reimbursing its employees for their
cleaning and equipment expenses through
a reimbursement arrangement.
Employer D prospectively alters its
compensation structurebyreducingthe
hourly compensation paidtoallemploy-
ees. Under Employer D’s new reim-
bursement arrangement, employees can
substantiate to Employer D the actual
amount of deductible expenses incurred
in purchasing their cleaning products and
equipment in connection with performing
services for Employer D. Employer D re-
imburses its employees for substantiated
expenses incurred in performing services
for Employer D. Any reimbursement
paid under Employer D’s reimbursement
arrangement is paid in addition to the
hourly compensation paid for the em-
ployees’ services. Employees who do not
incur expenses for cleaning products and
equipment in connection with their jobs
forEmployerD,orwhodonotproperly
substantiate such expenses to Employer
D, continue to receive the lower hourly
compensation and do not receive any re-
imbursement and are not compensated in
another way (for example, with a bonus)
to substitute for the reduction in the hourly
compensation. Employer D treats the
hourly compensation as taxable wages.
Employer D treats reimbursements for
cleaning and equipment expenses as non-
taxable reimbursements.
LAW AND ANALYSIS
Section 61 of the Internal Revenue
Code (Code) defines gross income as all
income from whatever source derived.
Section 62(a) defines adjusted gross in-
come as gross income minus certain de-
ductions. Section 62(a)(2)(A) provides
that, for purposes of determining adjusted
gross income, an employee may deduct
certain business expenses paid by the
employee in connection with the perfor-
mance of services as an employee of the
employer under a reimbursement or other
expense allowance arrangement. Sec-
tion 62(c) provides that, for purposes of
§ 62(a)(2)(A), an arrangement will not be
treated as a reimbursement or other ex-
pense allowance arrangement if (1) the ar-
rangement does not require the employee
to substantiate the expenses covered by
the arrangement to the person providing
the reimbursement, or (2) the arrangement
provides the employee the right to retain
any amount in excess of the substantiated
expenses covered under the arrangement.
Under section 1.62–2(c) of the Income
Tax Regulations, if a reimbursement or
other expense allowance arrangement
meets the requirements of business con-
nection, substantiation, and returning
amounts in excess of substantiated ex-
penses, all amounts paid under the ar-
rangement are treated as paid under an
accountable plan. Amounts treated as paid
under an accountable plan are excluded
from an employee’s gross income, are
exempt from withholding and payment of
employment taxes, and are not reported
as wages on the employee’s Form W–2.
If the arrangement fails any one of these
requirements, amounts paid under the
arrangement are treated as paid under a
nonaccountable plan, must be included in
the employee’s gross income for the tax-
able year, are subjectto withholding and
payment of employment taxes, and must
be reported as wages or other compensa-
tion on the employee’s Form W–2.
Section 1.62–2(d)(1) provides that an
arrangement satisfies the business connec-
tion requirement if it provides advances,
allowances, or reimbursements only for
business expenses that are allowable as de-
ductions by part VI, subchapter B, chapter
1 of the Code, and that are paid or incurred
by the employee in connection with the
performance of services as an employee of
the employer. Thus, not only must an em-
ployee actually pay or incur a deductible
business expense, but the expense must
arise in connection with the employment
for that employer.
Section 1.62–2(d)(3)(i) provides that
the business connection requirement will
not be satisfied if a payor pays an amount
to an employee regardless of whether
the employee incurs or is reasonably
expected to incur deductible business
expenses. Failure to meet this reimburse-
ment requirement of business connection
is referred to as wage recharacterization
because the amount being paid is not an
expense reimbursement but rather a sub-
stitute for an amount that would otherwise
be paid as wages.
Section 1.62–2(j)Example 1provides
an illustration of a case in which the re-
imbursement requirement is not satisfied.
In this example, Employer S pays its en-
gineers $200 a day. On those days that
an engineer travels away from home on
business for Employer S, Employer S
designates $50 of the $200 as paid to re-
imburse the engineer’s travel expenses.
On all other days, the engineer receives
the full $200 as taxable wages. Because
Employer S would pay an engineer $200
a day regardless of whether the engineer
was traveling away from home, the $50
Employer S redesignates as travel expense
reimbursement on days the engineer is
away from home on business is not a re-
imbursement and the arrangement does
not satisfy the reimbursement requirement
of § 1.62–2(d)(3)(i). Thus, no part of
the $50 Employer S designated as a re-
imbursement is treated as paid under an
accountable plan. Rather, all payments
under the arrangement are treated as paid
under a nonaccountable plan. Employer
S must report the entire $200 as wages
or other compensation on the employees’
Forms W–2, and must withhold and pay
employment taxes on the entire $200 when
paid.
Section 1.62–2(j)Example 3also illus-
trates a failure to satisfy the reimbursement
requirement. In this example, Corporation
R pays all its salespersons a salary. Cor-
poration R also pays a travel allowance
under an arrangement that otherwise meets
the requirements of business connection,
substantiation, and returning amounts in
excess of substantiated expenses. The
allowance is paid to all salespersons, in-
cluding salespersons that Corporation R
knows, or has reason to know, do not
travel away from their offices on Cor-
poration R business and would not be
reasonably expected to incur travel ex-
penses. Because the allowance is not paid
only to those employees who incur (or are
reasonably expected to incur) expenses
of the type described in § 1.62–2(d)(1)
or (d)(2), the arrangement does not sat-
isfy the reimbursement requirement of
§ 1.62–2(d)(3)(i). Thus, no part of the
allowance Corporation R designated as a
reimbursement is treated as paid under an
accountable plan. Rather, all payments
under the arrangement are treated as paid
under a nonaccountable plan. Corpora-
tion R must report all payments under the
arrangement as wages or other compen-
sation on the employees’ Forms W–2 and
September 10, 20123382012–37 I.R.B.

must withhold and pay employment taxes
on the payments when paid.
In Rev. Rul. 2004–1, 2004–1 C.B. 325,
drivers of a courier company were paid a
mileage allowance for local transportation
expenses. In situation 1 of the ruling, the
employer paid the couriers a commission
equal to X percent of the per package
charge (based on location, time of day,
type of service, mileage between pickup
and delivery, and other factors), known
as the tag rate, and a mileage allowance
equal to Y percent of the tag rate. In sit-
uation 2, the employer paid the couriers a
commission equal to Z percent of the tag
rate reduced by a mileage allowance equal
to the number of miles traveled multiplied
by the standard mileage rate. The revenue
ruling concludes that the reimbursement
arrangement in situation 1, which pays a
mileage allowance as a fixed percentage
of the tag rate, meets the business connec-
tion requirement. In contrast, the revenue
ruling concludes that the reimbursement
arrangement in situation 2, which sub-
tracts a mileage allowance (calculated at
the standard business mileage rate) from
the driver’s set commission rate and treats
only the remaining commission as wages,
fails the business connection requirement.
The variable allocation between commis-
sion and mileage allowance in situation 2
ensures that each driver always receives
the same gross amount regardless of the
amount of deductible employee business
expenses incurred by the courier by vary-
ing the amount treated as wages in light of
the mileage allowancepaid. Accordingly,
the arrangement effectively recharacter-
izes amounts otherwise payable as a tax-
able commission as a non-taxable mileage
allowance. The ruling provides that abona
fidereimbursement arrangement must pre-
clude the recharacterization as a mileage
allowance of amounts otherwise payable
as commission.See Shotgun Delivery v.
United States, 269 F.3d 969 (9th Cir. 2001)
(holding that a plan guaranteeing that em-
ployee drivers always received 40% of the
tag rate with a variable allocation between
taxable wages and nontaxable mileage
reimbursement was nonaccountable, and
noting that “the evidence suggests that
the plan’s primary purpose was to treat
the least amount possible of the driver’s
commission as taxable wages”).
The legislative history of § 62(c) indi-
cates that a taxpayer should not be able
to recharacterize an amount that would
have been paid as wages as a nontax-
able reimbursement in order to avoid the
two-percent of adjusted gross income lim-
itation (two-percent floor), enacted by the
Tax Reform Act of 1986, for deducting
most employee business expenses. Specif-
ically, the Tax Reform Act of 1986 sig-
nificantly changed rules for deduction of
employee business expenses by convert-
ing most of these expenses into itemized
deductions that an employee could only
deduct if the aggregate of such expenses
exceeded the two-percent floor. However,
the 1986 Act left in place the ability of a
taxpayer to deduct from gross income and
without regard to the two-percent floor,
pursuant to § 62(a)(2)(A), employee busi-
ness expenses incurred by a taxpayer as
part of a reimbursement or other expense
allowance arrangement with his or her em-
ployer. After enactment of the 1986 Act,
tax practitioners proposed that employ-
ers could use reimbursement and expense
allowance arrangements to (1) eliminate
the effect of the two-percent floor on de-
ductible employee expenses, and (2) save
both employer and employee employment
taxes by restructuring their compensa-
tion packages to convert a portion of an
employee’s compensation into a nontax-
able reimbursement. This restructuring
would permit employers to pay a lesser
total amount while increasing employees’
after-tax compensation.
Congress responded by enacting § 62(c)
in § 702 of the Family Support Act of
1988, 100 P.L. 485, 102 Stat. 2343 (1988).
In describing the conference agreement,
the House-Senate Conference Commit-
tee Report on that Act states that “[i]f an
above-the-line deduction is allowed for ex-
penses incurred pursuant to a nonaccount-
able plan, the two-percent floor enacted
in the [Tax Reform Act of 1986] could
be circumvented solely by restructuring
the form of the employee’s compensation
so that the salary amount is decreased,
but the employee receives an equivalent
nonaccountable expense allowance.” H.R.
Rep. No. 100–998, at 203, 100th Cong.,
2nd Sess. (Sept. 28, 1988). Section 62(c)
was enacted to prevent such restructuring
of compensation arrangements and permit
an above-the-line deduction only for ex-
penses reimbursed under what legislative
history referred to as an accountable plan.
Consistent with legislative history,
thepreambletoTreasury Decision 8324,
55 FR 51688, 1991–1 C.B. 20, 21 (1990),
states:
Some practitioners have asked whether
a portion of an employee’s salary may
be recharacterized as being paid under
a reimbursement arrangement. The fi-
nal regulations clarify that if a payor
arrangestopayanamounttoanem-
ployee regardless of whether the em-
ployee incurs (or is reasonably expected
to incur) deductible business expenses
or otherbona fideexpenses related to
the employer’s business that are not de-
ductible, the arrangement does not meet
the business connection requirement of
§ 1.62–2(d) of the regulations and all
amounts paid under the arrangement are
treated as paid under a nonaccountable
plan.... Thus, no part of an employee’s
salary may be recharacterized as being
paid under a reimbursement arrange-
ment or other expense allowance ar-
rangement.
While an employer may establish or
modify its compensation structure to in-
clude nontaxable reimbursement under
an accountable plan, recharacterizing
as nontaxable reimbursements amounts
that would otherwise be paid as wages
violates the business connection require-
ment of § 1.62–2(d), and more specifi-
cally the reimbursement requirement of
§ 1.62–2(d)(3)(i). This is true even if
an employee actually incurs a deductible
expense in connection with employment
with the employer.
The presence of wage recharacteriza-
tion is based on the totality of facts and
circumstances. Generally, wage rechar-
acterization is present when the employer
structures compensation so that the em-
ployee receives the same or a substan-
tially similar amount whether or not the
employee has incurred deductible business
expenses related to the employer’s busi-
ness. Wage recharacterization may occur
in different situations. For example, an
employer recharacterizes wages if it tem-
porarily reduces taxable wages, substitut-
ing the reduction in wages with a pay-
ment that is treated as a nontaxable reim-
bursement and then, after total expenses
have been reimbursed, increases taxable
wages to the prior wage level. Similarly,
an employer recharacterizes wages if it
pays a higher amount as wages to an em-
2012–37 I.R.B.339September 10, 2012

ployee only when the employee does not
receive an amount treated as nontaxable
reimbursement and pays a lower amount as
wagestoanemployeeonlywhentheem-
ployee also receives an amount treated as
nontaxable reimbursement. An employer
also recharacterizes wages if it routinely
pays an amount treated as a nontaxable re-
imbursement to an employee who has not
incurredbona fidebusiness expenses.
HOLDINGS
Situation 1.
Employer A’s tool plan does not sat-
isfy the business connection requirement
of the accountable plan rules because the
employer pays the same gross amount to a
technician regardless of whether the tech-
nician incurs (or is reasonably expected to
incur) expenses related to Employer A’s
business. Specifically, Employer A’s tool
plan ensures that a technician receives ap-
proximately the same gross hourly amount
by substituting a portion of what was paid
as taxable wages with a tool rate amount
that is treated as nontaxable reimburse-
ment, and then increasing the wages again
once all tool expenses have been reim-
bursed. Accordingly, the purported tool re-
imbursements are merely a recharacteriza-
tion of wages because approximately the
same amount is paid in all circumstances.
The fact that a technician actually incurs a
deductible expense in connection with em-
ployment does not cure the incidence of
wage recharacterization. The arrangement
fails to satisfy the business connection re-
quirement of § 1.62–2(d). Therefore, with-
out regard to whether it meets the other re-
quirements of an accountable plan as set
forth in § 1.62–2, Employer A’s tool plan
is not an accountable plan under § 62(c)
and the applicable regulations.
Situation 2.
Employer B’sper diemplan does not
satisfy the businessconnection require-
ment of the accountable plan rules because
Employer B pays the same gross amount
to nurses regardless of whether the nurses
incur (or are reasonably expected to incur)
travel expenses related to Employer B’s
business. Specifically, Employer B pays
the same gross compensation to nurses,
but a portion of the hourly compensation
is treated as nontaxableper diemwhen a
nurse is traveling away from his or her tax
home on assignment. For nurses traveling
away from their tax home on assignment,
Employer B reduces the amount of the
nurses’ compensation treated as taxable
wages and treats an amount equal to the
reduction in compensation as a nontax-
ableper diem. For nurses assigned to
hospitals within commuting distance of
their tax homes, Employer B treats all
compensation as taxable wages. Accord-
ingly, the purportedper diempayments
are merely recharacterized wages because
nurses receive the same gross compensa-
tion per hour regardless of whether travel
expenses are incurred (or are reasonably
expected to be incurred). The fact that a
nurse traveling away from his or her tax
home actually incurs a deductible expense
in connection with employment does not
cure the incidence of wage recharacteri-
zation. The arrangement fails to satisfy
the business connection requirement of
§ 1.62–2(d). Therefore, without regard to
whether it meets the other requirements
of an accountable plan as set forth in
§ 1.62–2, Employer B’sper diemplan is
not an accountable plan under § 62(c) and
the applicable regulations.
Situation 3.
Employer C’s mileage reimbursement
plan does not satisfy the business connec-
tion requirement of the accountable plan
rules because it operates to routinely pay
an amount as a mileage reimbursement
to workers who have not incurred (and
are not reasonably expected to incur) de-
ductible business expenses in connection
with Employer C’s business. The pur-
ported mileage reimbursement is merely
recharacterized wages because all work-
ers receive an amount as a mileage reim-
bursement regardless of whether they in-
cur (or are reasonably expected to incur)
mileage expenses. The arrangement fails
to satisfy the business connection require-
ment of § 1.62–2(d). Therefore, without
regard to whether it meets the other re-
quirements of an accountable plan as set
forth in § 1.62–2, Employer C’s mileage
reimbursement plan is not an accountable
plan under § 62(c) and the applicable reg-
ulations.
Situation 4.
Employer D’s reimbursement arrange-
ment satisfies the business connection
requirement of the accountable plan rules.
Employer D’s plan only reimburses em-
ployees when a deductible business ex-
pense has been incurred in connection
with performing services for Employer D
and the reimbursement is not in lieu of
wages that the employees would other-
wise receive. Although Employer D has
reduced the amount of compensation it
pays all of its employees, the reduction
in compensation is a substantive change
in Employer D’s compensation structure.
Under Employer D’s arrangement, reim-
bursement amounts are not guaranteed
and employees who do not incur expenses
in connection with Employer D’s busi-
ness, or who do not properly substantiate
such expenses, continue to receive the
reduced hourly compensation amount.
These employees do not receive any re-
imbursement and are not compensated in
another way to make up for the reduction
in the hourly compensation. Employer
D’s reimbursement arrangement does not
operate to pay the same or a substantially
similar gross amount to an employee re-
gardless of whether the employee incurs
(or is reasonably expected to incur) ex-
penses related to Employer D’s business.
The reimbursement is paid in addition
to the employees’ wages rather than as
a substitute for wages that would oth-
erwise be paid. Accordingly, Employer
D’s reimbursement arrangement satisfies
the business connection requirement of
§ 1.62–2(d). Therefore, as long as the sub-
stantiation and return of excess amounts
requirements are also met, Employer D’s
reimbursement arrangement is an account-
able plan under § 62(c) and the applicable
regulations.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Kelly Morrison-Lee of the Office
of Division Counsel/Associate Chief
Counsel (Tax Exempt & Government
Entities).For further information
regarding this revenue ruling, contact
Kelly Morrison-Lee at (202) 622–0047
(not a toll-free call).
September 10, 20123402012–37 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous
26 CFR 601.601: Rules and regulations.
Rev. Proc. 2012–35
SECTION 1. PURPOSE
This revenue procedure modifies and
supersedes Revenue Procedure 94–22,
1994–1 C.B. 608, and provides instruc-
tions and information on the Internal
Revenue Service’s (Service’s) letter-for-
warding program. This program is avail-
able to private individuals, as well as state
and federal agencies, who are attempting
to locate missing individuals.
SECTION 2. CHANGES
01. This revenue procedure has been
modified to remove language from the
“Purpose,” “Background,” and “Scope”
Sections of Revenue Procedure 94–22 that
provide that the Service will forward let-
ters on behalf of an individual, company or
organization that controls assets that may
be due a taxpayer, including Plan Admin-
istrators, sponsors of qualified retirement
plans, or qualified termination admin-
istrators (“QTAs”) of abandoned plans
under the Department of Labor’s Aban-
doned Plan Program who are attempting
to locate missing plan participants. Since
the release of this revenue procedure in
1994, several alternative missing person
locator resources, including the Internet,
have become available. Accordingly, the
Service will no longer consider locating a
missing taxpayer who may be entitled to a
retirement plan payment or other financial
benefit from an individual, company or
organization to be a humane purpose for
which the Service will provide letter-for-
warding services.
02. The “Procedure”section is updated
to reflect the correct address to which an
individual requesting letter forwarding ser-
vice must send the written request.
SECTION 3. BACKGROUND
Under Policy Statement P–1–187, the
Service established a program whereby the
Service will forward a letter to a missing
individual on behalf of a private individ-
ual or government agency if this action
is for a humane purpose and there is no
other way to relay the information to the
individual. Revenue Procedure 94–22 al-
lowed an individual, company, or organi-
zation that controls assets that may be due
a taxpayer, including Plan Administrators,
sponsors of qualified retirement plans, or
QTAs of abandoned plans under the De-
partment of Labor’s Abandoned Plan Pro-
gram attempting to locate missing plan
participants, to make a written request to
the Service to use its letter forwarding pro-
gram. Under this revenue procedure, the
Service will no longer provide letter-for-
warding services to locate a taxpayer that
may be owed assets from an individual,
company, or organization. The letter-for-
warding program is now limited to situa-
tionsinwhichapersonistryingtolocate
a taxpayer to convey a message for a hu-
mane purpose as defined in Section 4 or in
an emergency situation.
SECTION 4. SCOPE
01. The Service will forward letters
that serve a “humane purpose.” A humane
purpose is one in which a person is seek-
ingtofindamissingpersontoconveya
message of an urgent or compelling nature,
orisseekingtofindamissingpersonbe-
cause of an emergency situation. For ex-
ample, the Service will forward letters to
notify a person of a serious illness, immi-
nent death or the death of a close relative,
to locate a missing relative to convey an
urgent or compelling message, or to help
locate persons being sought for a medical
study to detect and treat medical defects or
diseases.
02. Examples of matters that are not
considered to be for a humane purpose in-
clude tracing a family tree or attempting
to locate individuals for reunion purposes.
Likewise, the Service will not forward let-
ters seeking reparation and will not for-
ward letters from individuals, companies
or organizations that control assets that
may be due taxpayers, including Plan Ad-
ministrators, sponsors of qualified retire-
ment plans, or QTAs of abandoned plans
under the Department of Labor’s Aban-
doned Plan Program attempting to locate
missing plan participants. Letter-forward-
ing requests that do not serve a humane
purpose, such as requests that merely pro-
vide a financial benefit, will not be pro-
cessed.
03. The Service will perform this let-
ter-forwarding service only if the Service
determines that it will not interrupt other
Service activities or conflict with prior
Service commitments. Under no circum-
stances will the Service disclose to the
requester confidential tax information,
such as an address or even the fact that an
address exists in Service files.
SECTION 5. PROCEDURE
01. The requester must submit a written
request that briefly explains the requester’s
need for letter-forwarding, the social secu-
rity number (SSN) for the individual be-
ing sought, and a copy of the letter to be
forwarded. The SSN is the key element
used to access the appropriate tax account
and retrieve a mailing address. If the re-
quester does not furnish a SSN, the Ser-
vice cannot process the request. Therefore,
the SSN for the missing individual must be
furnished by the requester.
02. If the Service locates an address for
the recipient, it will forward the letter in an
envelope bearing the Service’s return ad-
dress. The Service will tell the recipient
that: (1) the Service is forwarding the letter
in accordance with current policy; (2) the
Service has not divulged the recipient’s ad-
dress, any other tax information, or the fact
that the letter has even been forwarded; (3)
the Service has no involvement in the mat-
ter aside from forwarding the letter; and (4)
the decision of whether to respond is en-
tirely up to the recipient.
03. The Service will not provide the
requester with information concerning the
results of the Service’s efforts. The Ser-
vice will tell the requester only that it will
attempt to forward the letter if it locates an
address for the individual. If the requester
provides the most current address for a re-
cipient, and it is the same address that ap-
pears in the Service’s files, the Service will
not forward the letter. All undeliverable
letters will be destroyed.
04. Requests for letter forwarding as-
sistance should be directed to the Disclo-
sure Scanning Unit in Chamblee, GA, at
the following address:
2012–37 I.R.B.341September 10, 2012

Internal Revenue Service
Disclosure Scanning Operation —
Stop 93A
Chamblee, GA 30341
The Disclosure Scanning Unit will handle
these requests as its workload permits (see
Sec. 4.03. Scope). There is no charge for
this service, except as provided in Section
5.05.
05. Requests involving 50 or more
potential recipients, including multiple
requests from a single individual or en-
tity that can reasonably be aggregated to
meet the 50 recipient threshold, will be
processed under Project 753, Comput-
erized Mailout Program. Project 753 is
performed on a first-in first-out request
basis. Mailouts are “queued” at service
centers for processing. Generally, it will
take 90 days from the Service’s acknowl-
edgement of the request before the mailout
can be performed. The requester will be
charged for this service. The charge for
Project 753 requests is subject to change
but currently is approximately $1,750.00
plus $.50 per record. A more precise cost
estimate will be given upon request. The
Project 753 mailout program is only avail-
able for humane purposes as described in
section 4 of this revenue procedure.
06. The request must contain (1) a brief
explanation of the need for letter forward-
ing, and (2) one copy of the letter to be for-
warded. In addition, the following state-
ment should be conspicuously placed in
the letter to immediately catch the atten-
tion of the recipient:
“In accordance with current policy the
Internal Revenue Service has agreed to
forward this letter because we do not
have your current address. The Ser-
vice has not disclosed your address or
any other tax information and has no in-
volvement in the matter aside from for-
warding this letter.”
SECTION 6. EFFECTIVE DATE
This revenue procedure applies to re-
quests postmarked on and after August 31,
2012.
SECTION 7. EFFECT ON OTHER
DOCUMENTS
Revenue Procedure 94–22 is modified
and superseded.
SECTION 8. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Stephanie Sasarak of the
Office of Chief Counsel (Procedure and
Administration). For further information
regarding this revenue procedure, contact
Ms. Sasarak at (202) 622–4570 (not a
toll-free call).
September 10, 20123422012–37 I.R.B.

Definition of Terms
Revenue rulings and revenue procedures
(hereinafter referred to as “rulings”) that
have an effect on previous rulings use the
following defined terms to describe the ef-
fect:
Amplifieddescribes a situation where
no change is being made in a prior pub-
lished position, but the prior position is be-
ingextendedtoapplytoavariationofthe
fact situation set forth therein. Thus, if
an earlier ruling held that a principle ap-
plied to A, and the new ruling holds that the
same principle also applies to B, the earlier
ruling is amplified. (Compare withmodi-
fied,below).
Clarifiedis used in those instances
where the language in a prior ruling is be-
ing made clear because the language has
caused, or may cause, some confusion.
It is not used where a position in a prior
ruling is being changed.
Distinguisheddescribes a situation
where a ruling mentions a previously pub-
lished ruling and points out an essential
difference between them.
Modifiedis used where the substance
of a previously published position is being
changed. Thus, if a prior ruling held that a
principle applied to A but not to B, and the
new ruling holds that it applies to both A
and B, the prior ruling is modified because
it corrects a published position. (Compare
withamplifiedandclarified, above).
Obsoleteddescribes a previously pub-
lished ruling that is not considered deter-
minative with respect to future transac-
tions. This term is most commonly used in
a ruling that lists previously published rul-
ings that are obsoleted because of changes
in laws or regulations. A ruling may also
be obsoleted because the substance has
been included in regulations subsequently
adopted.
Revokeddescribes situations where the
position in the previously published ruling
is not correct and the correct position is
beingstatedinanewruling.
Supersededdescribes a situation where
the new ruling does nothing more than re-
state the substance and situation of a previ-
ously published ruling (or rulings). Thus,
the term is used to republish under the
1986 Code and regulations the same po-
sition published under the 1939 Code and
regulations. The term is also used when
it is desired to republish in a single rul-
ing a series of situations, names, etc., that
were previously published over a period of
time in separate rulings. If the new rul-
ing does more than restate the substance
of a prior ruling, a combination of terms
is used. For example,modifiedandsu-
persededdescribes a situation where the
substance of a previously published ruling
is being changed in part and is continued
without change in part and it is desired to
restate the valid portion of the previously
published ruling in a new ruling that is self
contained. In this case, the previously pub-
lished ruling is first modified and then, as
modified, is superseded.
Supplementedis used in situations in
which a list, such as a list of the names of
countries, is published in a ruling and that
list is expanded by adding further names in
subsequent rulings. After the original rul-
ing has been supplemented several times, a
new ruling may be published that includes
the list in the original ruling and the ad-
ditions, and supersedes all prior rulings in
the series.
Suspendedis used in rare situations to
show that the previous published rulings
will not be applied pending some future
action such as the issuance of new or
amended regulations, the outcome of cases
in litigation, or the outcome of a Service
study.
Abbreviations
The fol
lowing abbreviations in current use
and for
merly used will appear in material
publis
hedintheBulletin.
A—Individual.
Acq.—A
cquiescence.
B—Individual.
BE—Beneficiary.
BK—Bank
.
B.T.A.—Board of Tax Appeals.
C—Individual.
C.B.—Cu
mulative Bulletin.
CFR—Code of Federal Regulations.
CI—City.
COOP—Coo
perative.
Ct.D.—Court Decision.
CY—County.
D—Decede
nt.
DC—Dummy Corporation.
DE—Donee.
Del. Order
—Delegation Order.
DISC—Domestic International Sales Corporation.
DR—Donor.
E—Estate.
EE—Employee.
E.O.—Executive Order.
ER—Emp
loyer.
ERISA—Employee Retirement Income Security Act.
EX—Executor.
F—Fiduc
iary.
FC—Foreign Country.
FICA—Federal Insurance Contributions Act.
FISC—Fo
reign International Sales Company.
FPH—Foreign Personal Holding Company.
F.R.—Federal Register.
FUTA—Fed
eral Unemployment Tax Act.
FX—Foreign corporation.
G.C.M.—Chief Counsel’s Memorandum.
GE—Grante
e.
GP—General Partner.
GR—Grantor.
IC—Insura
nce Company.
I.R.B.—Internal Revenue Bulletin.
LE—Lessee.
LP—Limited
Partner.
LR—Lessor.
M—Minor.
Nonacq.—No
nacquiescence.
O—Organization.
P—Parent Corporation.
PHC—Persona
l Holding Company.
PO—Possession of the U.S.
PR—Partner.
PRS—Pa
rtnership.
PTE—Prohibited Transaction Exemption.
Pub. L.—Public Law.
REIT—Re
al Estate Investment Trust.
Rev. Proc.—Revenue Procedure.
Rev. Rul.—Revenue Ruling.
S—Subsi
diary.
S.P.R.—Statement of Procedural Rules.
Stat.—Statutes at Large.
T—Target
Corporation.
T.C.—Tax Court.
T.D.—Treasury Decision.
TFE—Trans
feree.
TFR—Transferor.
T.I.R.—Technical Information Release.
TP—Taxpay
er.
TR—Trust.
TT—Trustee.
U.S.C.—Uni
ted States Code.
X—Corporation.
Y—Corporation.
Z—Corporat
ion.
2012–37 I.R.B.iSeptember 10, 2012

Numerical Finding List
1
Bulletins 2012–27 through 2012–37
Announcements:
2012-26, 2012-27 I.R.B.8
2012-27, 2012-27 I.R.B.10
2012-28, 2012-27 I.R.B.10
2012-30, 2012-34 I.R.B.314
2012-31, 2012-34 I.R.B.315
2012-32, 2012-35 I.R.B.325
2012-33, 2012-35 I.R.B.325
2012-34, 2012-36 I.R.B.334
Notices:
2012-39, 2012-31 I.R.B.95
2012-44, 2012-28 I.R.B.45
2012-45, 2012-29 I.R.B.59
2012-46, 2012-30 I.R.B.86
2012-47, 2012-31 I.R.B.98
2012-48, 2012-31 I.R.B.102
2012-49, 2012-31 I.R.B.119
2012-50, 2012-31 I.R.B.121
2012-51, 2012-33 I.R.B.150
2012-52, 2012-35 I.R.B.317
2012-53, 2012-35 I.R.B.317
2012-55, 2012-36 I.R.B.332
Proposed Regulations:
REG-101812-07, 2012-34 I.R.B.311
REG-134042-07, 2012-27 I.R.B.5
REG-153627-08, 2012-29 I.R.B.60
REG-136491-09, 2012-35 I.R.B.321
REG-125570-11, 2012-30 I.R.B.93
REG-130266-11, 2012-32 I.R.B.126
REG-134935-11, 2012-29 I.R.B.64
REG-141832-11, 2012-28 I.R.B.54
REG-107889-12, 2012-28 I.R.B.53
REG-113738-12, 2012-29 I.R.B.66
Revenue Procedures:
2012-28, 2012-27 I.R.B.4
2012-29, 2012-28 I.R.B.49
2012-30, 2012-33 I.R.B.165
2012-31, 2012-33 I.R.B.256
2012-32, 2012-34 I.R.B.267
2012-33, 2012-34 I.R.B.272
2012-34, 2012-34 I.R.B.280
2012-35, 2012-37 I.R.B.341
Revenue Rulings:
2012-19, 2012-28 I.R.B.16
2012-20, 2012-27 I.R.B.1
2012-21, 2012-32 I.R.B.123
2012-24, 2012-36 I.R.B.329
2012-25, 2012-37 I.R.B.337
Treasury Decisions:
9591, 2012-28 I.R.B.32
9592, 2012-28 I.R.B.41
9593, 2012-28 I.R.B.17
9594, 2012-29 I.R.B.57
9595, 2012-30 I.R.B.71
9596, 2012-30 I.R.B.84
9597, 2012-34 I.R.B.258
1
A cumulative list of all revenue rulings, revenueprocedures, Treasury decisions, etc., publishedin Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin
2012–26, dated June 25, 2012.
September 10, 2012ii2012–37 I.R.B.

Finding List of Current Actions on
Previously Published Items
1
Bulletins 2012–27 through 2012–37
Announcements:
83-196
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
85-141
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
2008-105
Modified and superseded by
Ann. 2012-34, 2012-36 I.R.B.334
Notices:
2009-24
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
2012-51
Amplified by
Notice 2012-51, 2012-33 I.R.B.150
Proposed Regulations:
REG-100276-97
Withdrawn by
Ann. 2012-27, 2012-27 I.R.B.10
Revenue Procedures:
94-22
Modified and superseded by
Rev. Proc. 2012-35, 2012-37 I.R.B.341
95-15
Superseded by
Rev. Proc. 2012-31, 2012-33 I.R.B.256
98-32
Modified and superseded by
Rev. Proc. 2012-33, 2012-34 I.R.B.272
2007-38
Modified and superseded by
Rev. Proc. 2012-32, 2012-34 I.R.B.267
2011-40
Superseded by
Rev. Proc. 2012-30, 2012-33 I.R.B.165
1
A cumulative list of current actions on previously published items in Internal Revenue Bulletins 2012–1 through 2012–26 is in Internal Revenue Bulletin 2012–26, dated June 25, 2012.
2012–37 I.R.B.iiiSeptember 10, 2012

September 10, 20122012–37 I.R.B.

2012–37 I.R.B.September 10, 2012

September 10, 20122012–37 I.R.B.

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