VCU Health System MCV PHYSICIANS GUIDE FOR PROFESSIONAL EXPENSES AND EMPLOYEE REIMBURSEMENTS (BASED ON THE INTERNAL REVENUE SERVICE PUBLICATION 463)

VCU Health System MCV PHYSICIANS GUIDE FOR PROFESSIONAL EXPENSES AND EMPLOYEE REIMBURSEMENTS (BASED ON THE INTERNAL REVENUE SERVICE PUBLICATION 463) Effective for Purchases after June 30, 2004

PROFESSIONAL EXPENSES AND EMPLOYEE REIMBURSEMENTS I. General Overview? General Overview pg(s). 3? Ramifications of Non-Compliance pg(s). 3? Reimbursement pg(s). 4? Substantiation Requirements pg(s). 4 II. Submitting your reimbursement pg(s). 5 III. Policy? Cell Phone Usage pg(s). 6? DEA Registration pg(s). 7? Business Meals pg(s). 8? Entertainment pg(s.) 9? Gifts/Prizes/Awards pg(s). 10? Internet Access pg(s). 11? Medical Professional License Renewal pg(s). 12? Mixed Use Property pg(s). 13? Moving/Relocation pg(s). 14? Subscriptions/Dues pg(s). 15? Travel Expenses pg(s). 16&17? Key Person Life Insurance pg(s). 18 Appendix A: Examples of Reimbursement Forms to be used? Travel Authorization Form? Travel Reimbursement Form? Mileage Reimbursement Form 2

General Overview This guide is intended to provide a general overview of Internal Revenue Service regulations relative to reimbursable employee business expenses of professional expenses. This guide is not intended to provide a comprehensive interpretation of the Internal Revenue Code nor should any information presented in this guide take precedent over Internal Revenue Service regulations. We recommend the use of the Internal Revenue Service publications 463 Travel, Entertainment, Gift and Car Expenses as supplements to this guide. Ramifications of Non-Compliance The penalties for failure to comply with Internal Revenue Service guidelines are potentially severe. Tainting rules apply to reimbursement plans. In other words, the IRS can disallow an employee s entire reimbursement plan if any expenses are unsubstantiated or unallowable. If this were to occur, individuals would be liable for all income taxes. In addition, MCV Physicians would be liable for all employment taxes (employer and employee portions of FICA and Medicare-15.3percentage). Why is MCV Physicians so concerned about documentation? Material non-compliance or lack of diligence in enforcing substantiation requirements could result in the disqualification of the reimbursement plan for the entire organization. Further, patterns of abuse might be construed to be private inurement and could jeopardize our not-forprofit status. 3

Reimbursement A good rule of thumb for determining whether an expense is reimbursable is as follows: If you derive any personal benefit from the expense in question, it probably is not reimbursable. Common Examples of Expenses not Considered Business Related or Reimbursable: Home Phone Lines Commuting Expenses Business Suits Medical Expenses Gifts/Bonuses to State Employees Spousal Travel Expenses Parking Tickets Kennel Fees/Pet-sitting Home Office Expenses Personal Dry Cleaning Tuition for employee family Immigration fees Personal Usage of Cellular Phones Home Personal Computers Briefcases Political Contributions Safety Deposit Boxes House-hunting Expenses House-sitting Expenses Software for home use Vehicle Property Taxes Car Payments Will preparation Personal Aircraft Substantiation Requirements: Employees must adequately substantiate all qualifying expenses, and MCV Physicians must take reasonable measures to ensure that these requirements are enforced. The Travel Expense Reimbursement Voucher form is located in Appendix A and must be used to apply for reimbursement. 1. Submit Original Receipts Original receipts are required for hotel bills, airplane tickets, meals and any unusual authorized expense. Inability to provide original receipts will cause the reimbursement to be a taxable event reported on the employee s W-2. 2. State Business Purpose and Business Relationship Do not assume that the business purpose is obvious. Be specific and descriptive. Listing of the attendees and the business purpose of expense must be stated. 3. Provide Proof of Payment A canceled check, together with a bill from the payee ordinarily establishes the cost. However, a canceled check by itself does not prove a business expense with other evidence to show that it was for a business purpose. Other forms of proof of payment are credit card receipts and receipts of payment from the payee. NOTE: ALL reimbursements, which are not adequately substantiated, will be reported as taxable income. Non-deductible reimbursements will also be reported as taxable income. MCV Physicians will notify you of deficiencies in substantiation and provide you with an opportunity to correct the problem. 4

Submitting your reimbursement ALL reimbursement documentation must be completed and submitted to the Department of Finance within one hundred twenty (120) days. Reimbursements not submitted within guidelines will be disallowed. The employee s supervisor must approve the voucher and submit to Accounts Payable for processing within five (5) business days of receipt from employee. See Appendix A for the Travel Expense Reimbursement Voucher form. All reimbursements must be submitted on the appropriate form. References IRS Publication 463 Travel, Entertainment, Gift and Car Expenses, 2003. IRS Publication 1542 Per Diem Rates revised February, 2003. 5

CELL PHONE/BLACKBERRY USAGE REIMBURSEMENT POLICY Effective Date: 01/21/04 Revision Date: 10/18/06 Purpose: To define reimbursement guidelines for cellular telephone/blackberry service acquired by employees of the VCU Health System. To clarify that monthly base fees and business related calls are reimbursable; however, personal calls are not. To establish that actual cellular telephone, and/or related equipment are not reimbursable under any circumstance. System for cellular telephone/blackberry service. Also, this policy will encourage the procurement of minimal monthly base fees. Reimbursement Requirements: An original bill and proof of payment must be submitted with the reimbursement request. Also, the following criteria must be met. 1. Contracted base fee for cellular/blackberry service may not exceed $40 for faculty and staff. Contract base fee for Chairmen may not exceed $80. 2. An itemized billing from the cellular/blackberry service must be provided for all business calls to be reimbursed. If an itemized bill is not provided only the base fee will be reimbursed on a pre-tax basis. 3. All personal calls must be subtracted from the total bill. 4. The cellular telephone/blackberry must be a required condition of employment. 6

DEA REGISTRATION Effective Date: 01/21/04 Purpose: To define proper processing of DEA registrations. To ensure the fact that the responsibility of renewing the DEA license prior to the renewal date is solely that of the individual requiring the DEA license. Rationale: To establish the consistency of processing DEA registrations and to control funds unnecessarily spent by the VCU Health System for DEA licenses. To enforce Title 21 CFR Section 1301.21 which states any hospital or other institution which is operated by an agency of the United States, of any State, or any political subdivision or agency thereof is exempt from DEA renewal fees. Reimbursement Requirements: When submitting an application to the DEA the department administrator or MCVP Director of Finance must sign under section 7 of the application. Section 7 designates exemption from fee. No payment is to be sent with the application. If an individual pays the DEA not knowing of fee exemption, he must provide proof of payment and/or receipt from the DEA along with the check request to MCV Physicians for reimbursement. 7

BUSINESS MEALS REIMBURSEMENT POLICY Effective Date: 01/21/04 Revision Date: 08/02/06 Purpose: To define reimbursement guidelines for business meals acquired by employees of the VCU Health System. System for business meals. Business Meals: Business meals are only reimbursable if the expenses are directly related to your business. The following factors must apply for reimbursement to take place:? The main purpose of the combined business and entertainment was the active conduct of business.? The employee actually conducted business and entertainment during the entertainment period.? The employee had more than a general expectation of obtaining income or some other specific business benefit at some future time.? Reimbursement amount must not exceed $90 per person. Any exception must be approved in advance. Reimbursement Requirements: An original bill and proof of payment must be submitted with the reimbursement request. A list of attendees must be submitted with the check request. 8

ENTERTAINMENT REIMBURSEMENT POLICY Effective Date: July 16, 2003 Board Approved Purpose: To define for what purposes and to what extent departments may use specific funds for entertainment expenses. To further define the circumstances under which MCVP Board approval is required. System for entertainment and business meals. Celebrations: See sanctioned policy guidelines below: 1. Allowable celebrations that utilize MCVP dollars include: Resident/Fellow graduation, Holiday parties, receptions, and celebrations of the Academic Mission. All others must receive special permission from the MCVP Board. 2. Celebrations noted above do not require MCVP Board approval as long as the Department has a positive operating margin and is not in receivership. 3. Expenses are capped at $90 per person. Exceptions must be approved in advance. 4. Any exceptions to the above must be approved by the MCVP Board. Reimbursement Requirements: An original bill and proof of payment must be submitted with the reimbursement request. A list of attendees must be submitted with the check request. 9

GIFTS /PRIZES/AWARDS REIMBURSEMENT POLICY Effective Date: 01/21/04 Purpose: To define reimbursement guidelines for gifts, prizes, and awards received by employees of the VCU Health System. System for gifts, prizes, and awards; and to comply with IRS guidelines. 1. Gifts: To state that the Internal Revenue Service allows reimbursement for gifts, which are equivalent to $25 or less per employee per year. State policy expressly prohibits Commonwealth of Virginia employees from receiving cash gifts and noncash gifts greater than $25. Gifts to any employee, regardless of funding source, are deemed a personal expense, unless: The gift is in connection with a sanctioned employee incentive program and is under $400 in value. 2. Awards & Prizes: Awards and prizes to all employees must be in connection with a program approved by VCU Health System Human Resources Department. All awards and prizes must be reported to VCU Health System Payroll Department along with the recipient s social security # so that the award/prize can be reported on the employee s W-2 as income. Reimbursement Requirements: An original bill and proof of payment mu st be submitted with the reimbursement request. The recipient s name and social security # are to be provided with the payment request. The following rules apply equally to non-cash gifts as well. Also, the following criteria must be met. 1. The gift value is less than $25. 2. The payment is reported as taxable income to the recipient of the gift. 3. Gift certificates are considered cash, regardless of amount, unless specific item is listed for purchase. 10

INTERNET ACCESS REIMBURSEMENT POLICY Effective Date: 01/21/04 Purpose: To define reimbursement guidelines for internet access acquired by employees of the VCU Health System. System for internet access. Also, to encourage the use of the VCU internet access account. Reimbursement Requirements: Each department is advised to acquire internet access through the account offered by VCU. If an individual opts to go elsewhere for service, the individual will only be reimbursed the VCU rate of $9.95 per month. An original bill and proof of payment must be submitted with the reimbursement request. 11

MEDICAL PROFESSIONAL LICENSE RENEWAL Effective Date: 01/21/04 Purpose: To define payment and reimbursement guidelines for licenses paid by Medical Professionals employed by the VCU Health System. This includes (but is not limited to) MD s, LPN s, and RN s. To ensure the fact that the responsibility of renewing the license prior to the renewal date is solely that of the Medical Professional. System for medical licenses. This policy states that the maintenance of out-of-state medical licenses is the responsibility of the individual. Out-of-state medical licenses will be reimbursed to the department Chairmen only, and for all other medical professionals it is a personal expense. Reimbursement Requirements: The Medical Professional requiring a license to practice is to submit the payment to the state prior to the renewal date. A reimbursement request then should be submitted to MCV Physicians along with a copy of the application and proof of payment. 12

MIXED USE PROPERTY REIMBURSEMENT POLICY Effective Date: 01/21/04 Purpose: To define reimbursement guidelines for Mixed Use Property acquired by employees of the VCU Health System. And, to clarify what is considered Mixed Use Property. System for Mixed Use Property. To define Mixed Use Property as any tangible item, which is used for, or has the capability of being used for, both business and personal purposes. In order to qualify for business reimbursement, the property must be required as a condition of employment and must be for the convenience of the employer not merely for the convenience of the employee. The Internal Revenue Service takes a very aggressive position on their interpretation of this code section. Non-Reimbursable Mixed Use Property: The following categories of property, in most cases, will not qualify as a business reimbursement even if used entirely for business purposes. The IRS takes the position that the following items are for the convenience of the employee, not required as a condition of employment.? Home use Computers? Primary or secondary home phone lines? Home Office? Non-business software Reimbursement Requirements: An original bill and proof of payment must be submitted with the reimbursement request. Also, the use of the item must be clearly defined. No reimbursement will be made for items such as computers, and digital cameras unless the item will remain at the business location and the use is clearly defined as business purpose only. Items deemed reimbursable will be reimbursed at a pretax rate. reported in the fiscal year that the expense occurred. Also, the clin ical department can deny reimbursement 13

MOVING & RELOCATION REIMBURSEMENT POLICY Effective Date: 1/21/04 Revision Date: 12/6/06 Purpose: To define reimbursement guidelines for moving and relocation by employees of the VCU Health System. System for moving and relocation. To specify that only reimbursement or payment for the actual moving of the employee, family, household goods, and persona effects is allowed. Also, the responsible Vice President and VCU Health System Human Resources must approve the offer of reimbursement for moving and relocation expenses before the offer is formally made to the employee or any expenses are incurred. Eligibility: The employee must be a salaried full-time employee of MCV Physicians. The employee must have an agreement to work document. If employment is terminated prior to completing two years of service, the relocation/moving expense must be reimbursed by the employee. The move must have been a requirement for hire, and the distance from new job location to former residence must be at least 50 miles more than the distance from former job and former residence. Reimbursement Requirements: Original bills and proof of payment must be submitted with the reimbursement request. The following criteria must be met:? The expenditure must be reasonable and necessary; and must have been incurred after official acceptance of employment.? Reimbursement must be requested within twelve months of employee start date.? The total reimbursement cannot exceed $10,000.? Reimbursement for driving a personal vehicle to new residence will be awarded at the current IRS allowable rate. 14

SUBSCRIPTIONS/DUES REIMBURSEMENT POLICY Effective Date: 01/21/04 Purpose: To define reimbursement guidelines for subscription/dues paid for by employees of the VCU Health System. System for acquiring subscriptions and dues. Subscriptions: Subscriptions to professional journals are generally reimbursable. Subscriptions for newspapers and popular magazines (i.e. Time, People, National Geographic, PC World) are reimbursable if purchased for the benefit of the patients. Billing for these magazines should be addressed to the clinic and the bill should be submitted to the MCV Physicians Accounts Payable for payment. Dues: Dues for membership in professional organizations are generally reimbursable on a pre -tax basis. Dues for memberships in country clubs, athletic associations, travel clubs, airline clubs, credit card fees, etc. are not reimbursable. Original bills must be submitted in order to be reimbursed. Reimbursement Requirements: An original bill and proof of payment must be submitted with the reimbursement request. Dues must be for business purposes only and subscriptions solely for the benefit of the MCVP missions or patient waiting areas.. 15

TRAVEL EXPENSE REIMBURSEMENT POLICY Effective Date: 01/21/04 Revision Date: 08/28/06 Purpose: To define payment and reimbursement guidelines for all local, out-of-state and out-of-country travel. To clarify allowable and non-allowable travel related expenses. System for travel. To ensure that travel expenses incurred by VCU Health System employees on official business must be reasonable, necessary and represent an efficient use of resources. Any falsification of expenditures constitutes fraud and will be treated as such. To enforce incremental expenses for travel, food or lodging associated with a spouse accompanying and employee on a business trip will not be reimbursed. No expenditures for personal pleasure or entertaining are allowed. Travel Authorization: The travel authorization form showing estimated expenses must be pre-approved by the department chair 2-4 weeks prior to travel. Out-of-Country travel must also have prior written approval of the VP for Health Sciences. Department Chairs must have written approval by the Dean of the School of Medicine and the VP of Health Sciences. Transportation: Personal automobiles may be used and expenses will be reimbursed at the current IRS mileage reimbursement rate. Maintaining appropriate automobile insurance is the responsibility of the traveler. Neither the option to purchase additional insurance for rental cars nor any damage to personal or rental vehicles is reimbursable. Travelers must ensure that rental vehicles are refueled before returning the vehicle. Reimbursement will be based on the fuel usage and receipts provided. Original receipts are required for airline, taxi, shuttle, and all other forms of public transportation when the cost is greater than $10. Rates must not exceed those for tourist or coach class accommodations. If first or business class accommodations are submitted, the traveler will only be reimbursed for the coach fare as determined by the MCVP Finance department. The traveler will not be reimbursed for airline/rail tickets until the trip is completed and receipts are submitted with their travel voucher. Meals: Expenses for social guests, e.g., spouses or friends are non-reimbursable. If meals are provided by the conference, separate reimbursement will not be approved. Expenses should be reasonable and are subject to review (in general meals less than $75 for physicians and less than $50 per all other employees would be considered reasonable). Receipts must be submitted for all meals over $10.00. Meals over $10 not substantiated with receipts will cause the entire reimbursement to default to the IRS per diem for meals. Reasonable amounts of beer and wine will be reimbursed. Lodging: Original hotel bills showing a 0 balance obtained at the time of checkout and other supporting receipts for lodging expenses must be submitted with the travel voucher. Resort fees, movies, and any other personal expense will not be reimbursed. Stays at conference hotels will be reimbursed at the single room rate. Stays at non-conference hotels are subject to IRS per diem rates (IRS Publication 1542 or www.policyworks.gov/perdiem). When lodging used is other than hotels and motels, e.g., apartments, a comparison statement including authorization by the traveler s supervisor must be submitted with the travel voucher. The comparison statement should show the following:? Total cost for using the alternate accommodations and length of contract? Cost of the usual accommodations? Net savings 16

Non-Canceled Reservation Charges are not reimbursable. Registration Fees: An employee attending a conference for business purposes will be reimbursed for registration fees incurred. The attendee must submit proof of payment and original receipt. Business Calls, Telegrams and Facsimiles: Business calls, telegrams and facsimiles are reimbursable only if for business purposes and submitted on the Travel Reimbursement form. Reimbursement Requirements: The VCU Health System employee must submit all travel related reimbursements on the sanctioned MCV Physicians Travel Reimbursement form. The form must be approved by the traveler s immediate supervisor. All original receipts must be submitted with the Travel Reimbursement form. The purpose of the trip must be clearly stated. Travelers must complete, sign, and date the Travel Reimbursement Voucher within thirty (30) days of completion of trip. Reimbursement not submitted within sixty (120) days will be disallowed. Note: Any payment to the traveler (i.e. Honorariums, vendor payments, reimbursement for travel from outside groups and/or royalty payments) will be deducted from total reimbursement before use of professional expense allowable. Failure to declare payments will result in disciplinary action.. 17

Key Person Life Insurance Effective Date: July 16, 2003 Board Approved Purpose: To define under which conditions a department may choose to obtain life insurance on a key faculty member. System for key person life insurance. Conditions: See sanctioned conditions below: 1. The death of a faculty member would cause significant difficulty for the Department because of (a) his/her unique contributions, (b) other people/programs in the department/university are critically dependent upon him/her and (c) it would be difficult to replace him/her. 2. The beneficiary of the insurance should be the Departmental account in the MCV Foundation. The funds must be used for either recruitment of the replacement for the key person or for establishing an endowment to support the position vacated by the death. Such endowment can be named for the key person if h/she wishes. Any other name chosen should be at the discretion of the key person. 3. The key faculty person must have agreed to have his/her life insured by the Department. 4. The cost of the insurance will be paid by the Department, and should not be undertaken if the Department is in receivership or imminent receivership. 5. Must be approved by the MCV Board. 18

APPENDIX A Forms 19