spouses, dependents or others who are accompanying someone conducting business for the organization unless they, too, are conducting such business.
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Introduction
If, in certain circumstances, an organization deems it proper to cover expenses for a spouse, dependent, or other person accompanying someone on business travel, the payment generally must, by law, be treated as compensation to the individual traveling on behalf of the organization. This principle need not apply to de minimis expenses such as the cost of a meal at organization functions where participants are invited to bring a guest.
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Core Concepts
- Reimbursement of expenses for spouses is appropriate only when they have a role in conducting business for the organization.
- In other situations, paid expenses for the spouse are considered compensation for the person conducting business for the organization.
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Legal and Compliance Issues
- Excessive reimbursement can be considered a deliberate personal benefit and is not appropriate for a tax-exempt organization.
- Spousal reimbursement is generally considered compensation and should be reported as such.
- IRS Form 990 asks whether organizations pay or reimburse spousal or companion travel expenses for board members, officers, and key employees.
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Legal Background
Federal law generally requires that payments of travel expenditures for spouses, family members, and others accompanying an individual traveling on behalf of the organization must be treated as taxable income to the individual they are accompanying.1 As with other travel expenses, the law requires public charities intending to treat such expenditures as compensation to provide contemporaneous written substantiation by reporting the amounts on a Form W-2, a Form 1099, or a Form 990, or otherwise documenting such compensation in writing; otherwise, the compensation will be treated automatically as an “excess benefit.”2
Board members and executives of charitable organizations who approve or receive excessive travel benefits are subject to penalties under existing law.3(From The Principles for Good Governance and Ethical Practice: Reference Edition,
Published in 2007)1 Treas. Reg. §§ 1.162-2, 1.132-5
2 IRC § 4958(c)(1)(A); Treas. Reg. § 53.4958-4(c)(1).
3 IRC §§ 4941, 4958. -
Discussion Points
These questions – from the Principles Workbook (PDF) – are intended to prompt discussion about the principle, assess the polices and practices of your organization, and encourage your organization to take steps to identify where improvements should be made.
- Do we have a policy that addresses reimbursement of expenses for spouses or dependents of board members?
- Why is it important for our organization to have a clear position on reimbursing expenses for travel companions?
- When it is deemed appropriate to reimburse expenses for travel companions, are we clear when this is to be reported as income?
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Resources for Principle #26
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Related Principles
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Supplemental Materials
