We complete our “mini-series” on board member payments/benefits this week. Does your institution reimburse board of trustees members for travel expenses? Mileage? At what rate?


Marathon Bible College (MBC) is a public charity under I.R.C. section 501(c)(3) (and I.R.C. section 170(b)(1)(A)(ii)). As we are working on their audit and Form 990, we have an interesting discussion about what amount should be used to reimburse board members – under an accountable reimbursement plan – for mileage when they travel to board meetings.

The business mileage rate for 2016 is 54 cents per mile. The charitable mileage rate is 14 cents per mile. (It should be noted that the charitable mileage rate is set by Congress and our friends in the Senate and House have not felt the need to change it since 1998.)

So, the issue could result in a 40-cents-per-mile swing for 2016! And, if the answer is the 14 cents per mile charitable mileage rate, does MBC then have a 40 cents per mile times the number of miles reimbursed “excess benefit transaction” under I.R.C. section 4958? Hmmm.


Treasury Regulation 1.132-5(a)(1):
Gross income does not include the value of a working condition fringe. A “working condition fringe” is any property or service provided to an employee of an employer to the extent that, if the employee paid for the property or service, the amount paid would be allowable as a deduction under section 162 or 167.

Treasury Regulation 1.132-5(r)(1):
Solely for the purposes of section 132(d) and paragraph (a)(1) of this section, a bona fide volunteer (including a director or officer) who performs services for an organization exempt from tax under section 501(a), or for a government employer (as defined in paragraph (m)(7) of this section), is deemed to have a profit motive under section 162.

Internal Revenue Code section 132(d):
For purposes of this section, the term “working condition fringe” means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.
From Internal Revenue Code section 162(a)(2):
There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
traveling expenses (including amounts expended for meals and lodging other than amounts which are lavish or extravagant under the circumstances) while away from home in the pursuit of a trade or business;

**Now, using this chain of logic (and there are others), at this point, it would appear to be a “slam dunk” that the board member could be reimbursed at the business mileage rates (54 cents per mile for 2016.)
But there is that nagging little phrase in I.R.C. section 132(d) that states, “…to the extent that, if the employee [bona fide volunteer] paid for such property or services, such payment would be allowable as a deduction…” If the “bona fide volunteer” foregoes reimbursement from the charity and deducts the mileage from their income tax return, they would be limited to the statutory charitable mileage rates (or “variable” automobile expenses – see below.)

From Revenue Procedure 2010-51:
A deduction computed using the applicable standard mileage rate for charitable, medical, or moving expense miles is in lieu of a deduction for variable expenses (including gasoline and oil) of the automobile allocable to those purposes. Costs for items such as depreciation or lease payments, insurance, and license and registration fees are not deductible for these purposes and are not included in the charitable or medical and moving standard mileage rates.

**This sets forth that there is a difference between business “mileage” expenses allowed and charitable “mileage” expenses allowed.

From Schedule L (Form 990), Part I instructions (2015):
An excess benefit transaction generally is a transaction in which an applicable tax-exempt organization directly or indirectly provides to or for the use of a disqualified person an economic benefit the value of which exceeds the value of the consideration received by the organization for providing such benefit.

From Form 990, Appendix G (2015):
Section 4958 Taxes
Tax on disqualified persons. An excise tax equal to 25% of the excess benefit is imposed on each excess benefit transaction between an applicable tax-exempt organization and a disqualified person . The disqualified person who benefited from the transaction is liable for the tax. If the 25% tax is imposed and the excess benefit transaction is not corrected within the taxable period, an additional excise tax equal to 200% of the excess benefit is imposed.
Tax on organization managers. An excise tax equal to 10% of the excess benefit can be imposed on the participation of an organization manager in an excess benefit transaction between an applicable tax-exempt organization and a disqualified person. This tax, which cannot exceed $20,000 for any single transaction, is only imposed if the 25% tax is imposed on the disqualified person, the organization manager knowingly participated in the transaction, and the manager’s participation was willful and not due to reasonable cause.

My Commentary

So, what’s the answer for MBC? Well, I’m not sure it is clear. We’ve talked to the IRS about this very issue and they have said they’d give us guidance in the near future – maybe in the form of one of their new “Issue Snapshots” (which are REALLY COOL!) and we will see what they say.
Personally, I tend toward reimbursing board members at the charitable mileage rate as a best practice/policy for three reasons:

1. As stated above, it would be equal to the amount that the board member could deduct if they took the deduction on their tax return rather than seeking reimbursement from your institution;
2. It is a better deal for your school – saves 40 cents per mile in 2016; and
3. This “conservative” approach helps avoid any entanglements with the excess benefit transaction rules of I.R.C. section 4958.

Bottom Line

This, like the Big Fig Newton, is tricky! Consult with your qualified, knowledgeable tax advocates to ensure that you adequately document your reasonable positions with regard to these issues – given “all facts and circumstances.”

Specific questions? Email Dave Moja.

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.