Ask Tom Anything - March 31, 2023

Unreimbursed partnership expenses plus your tax questions answered

In last month’s Ask Tom Anything edition, there was a question regarding out-of-pocket business expenses for partners in a partnership.

This may surprise you, but whether or not a partner can participate in a partnership’s accountable reimbursement plan is unclear. Treas. Reg. §1.62-2, which governs the taxability of reimbursements, only discusses payments to employees, and a partner cannot be an employee of their own partnership.

Partners have a straightforward way around this ambiguity: the unreimbursed partnership expense (UPE) deduction.