A charitable organization’s travel policies should be unambiguous and easy to follow, and should reflect the organization’s principled judgment about what it considers “reasonable” expenditures for individuals who must travel to conduct business on its behalf. These policies should include procedures for properly documenting expenses incurred and their organizational purpose.

• The organization should have a policy that establishes guidelines for expense reimbursement.
• Keeping accurate records of expenses is essential. 
• Receipts should be required for expense reimbursement. 
• A reimbursement policy should define what expenses are appropriate and what expenses are considered excessive and not appropriate.

• Reimbursement for unsubstantiated or excessive travel expenses is considered compensation and should be reported as such on the recipient’s W-2 and in IRS Form 990.
• IRS Form 990 asks whether organizations pay or reimburse first-class or charter travel expenses for board members, officers, or key employees.

Public charities and private foundations, like taxable organizations, are permitted to pay for or reimburse ordinary and necessary expenses incurred in carrying out the organization’s activities, including the costs of travel. Under federal tax regulations, expenses for transportation, lodging, and meals must be documented to establish that they were incurred in connection with the work of the organization and not the personal activities of the individual. Federal tax regulations also require that these expenses not be “lavish or extravagant under the circumstances,” though “lavish” and “extravagant” remain undefined in the tax code or
in regulations.¹ Special rules apply to many types of travel-related expenses and reimbursement methods, including per diem payments, car allowances, employer provided
vehicles, security expenses, and travel expenses of spouses or other family members.²
Travel expenses also have specific documentation requirements; for example, proper receipts and an indication of the business purpose of the travel or expenditure must be provided.³ Taxable organizations also have limitations on deductions for meals, entertainment expenses, and some travel expenses.⁴

Travel expenses that are paid or reimbursed but are not properly documented or are “lavish or
extravagant” must be treated as additional taxable compensation to the individual benefiting from them. The law requires public charities intending to treat an expenditure 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.”⁵ Board members and executives of charitable organizations who approve or receive excessive travel benefits are subject to penalties under existing law.⁶

1. Reimbursement for travel expenses can be a slippery slope. Clear, easy-to-follow guidelines protect our organization from abuse, bad publicity, or inconsistent interpretation. Have we reviewed our travel policies and compared ours to those of other organizations?
2. Exceptions to our policies, such as first-class travel, should be consistently applied and transparent to all board members. Do our policies for travel promote the organization’s best interest in the most cost-effective way? Are exceptions consistent and transparent?

20 Board Compensation

26 Expense Reimbursement for Nonbusiness Travel Companions