1263 - University-Related Business Entertainment Expenses Policy

Title

University of North Carolina at Chapel Hill Finance Policy 1263 - University-Related Business Entertainment Expenses

Reason for Policy

The purpose of this policy is to provide guidance as to the type expenses that qualify as business expenses under the various fund sources received by the University, the documentation requirements for business expenses, and when business expenses might be taxable.

Policy Statement

The University is committed to sound fiscal stewardship of State, Federal and Institutional funds. Business entertainment is often essential for employees to carry out the mission of The University of North Carolina at Chapel Hill. However, not all fund sources may pay for business entertainment expenses.

1. Sponsored Research

Business entertainment expenses cannot be charged to contracts and grants unless such entertainment is specifically authorized by the terms of the contract or grant.

2. State Appropriations/State Receipts-Supported/Facilities & Administrative (F&A) Receipts Funds

These funds may be used in limited circumstances as follows:

Alcohol

State Appropriated funds, State Receipts-Supported funds, and F&A funds may not be used to purchase alcohol.

External Conferences

External conferences are those that involve the attendance of persons other than University employees during which official University business is discussed for the majority of the meeting. Payments for meals up to the State per diem allowance for meals under the travel rules are allowable if included in the registration fee. The registration fee must be charged to cover more than just the meal costs unless overnight travel criteria are met. Refreshment breaks may be paid from this fund source if there are twenty (20) or more participants and the costs do not exceed five dollars ($5.00) per participant per day.

Internal Conferences

Internal conferences are those that involve the attendance of employees within the University. Payments for meals are not allowable unless overnight travel criteria are met. Refreshment breaks may be provided if there are twenty (20) or more participants and the costs do not exceed five dollars ($5.00) per participant per day.

Training Sessions

Training sessions involve courses that develop an employee's knowledge, skill, and ability to perform the duties of their present job. The courses generally have a set fee, are of relatively short duration and are not part of a curriculum leading to an educational degree. Refreshment breaks may be paid from this fund source if there are twenty (20) or more participants and the costs do not exceed five dollars ($5.00) per participant per day. The cost of meals may not be paid.

Informal Meetings

Expenses for informal meetings may not be paid from this fund source unless advance, written approval is received from the Chancellor or their designee for a specific event. An informal meeting is a meeting including the Chancellor or their designee and non-state employees during which official University business is discussed for the majority of the meeting. Informal meetings are those not held on a recurring basis. The Chancellor, or their designee may be reimbursed for actual costs of meals for themselves and individuals who are not state employees and who are their guests.

Recruitment of Employees and Students

Expenses related to recruitment are not allowed on these fund sources unless expressly allowed as described in the Other Business Entertainment section below.

Other Business Entertainment

Other business entertainment expenses may not be paid from F&A funds. These expenses may be paid from State fund sources based on the facts and circumstances of the situation if advance, written approval is obtained from the Vice Chancellor for Finance and Operations or their designee. The departmental dean, director or chair should provide documentation that the funds were provided by the state for a particular instructional, research, public service or academic or administrative support program with the intention that appropriate business entertainment expenses would be part of the costs of operating the program.

3. Institutional Trust Funds and Special Funds (excluding F&A funds)

Business entertainment expenses may be charged to Institutional Trust Funds (excluding F&A Receipts - see previous section) and Special Funds as described below.

Alcohol

Alcohol may be purchased from other Institutional Trust Funds or Special Funds only if those funds are discretionary in nature and the fund authority is sufficiently broad to cover the purchase. Guidelines pertaining to the purchase and sale of alcohol, the location of functions which includes alcohol on University property, and the requirements for functions at which alcohol is served should be followed.

Recruitment of Employees and Students

The University recruits in a highly competitive market for top employees and students. It is the policy of the University to invite prospective employees and students, and on occasion, both the candidate and immediate family members, to visit the campus. Prudent and reasonable costs of a dinner (or other meal) meeting or a reception which occurs as part of the recruitment process may be reimbursed as business entertainment.

Prudence suggests that University employees (including their guests) involved in the recruitment events should be limited to:

  1. in the case of faculty: key faculty, department chairs, and dean or associate dean;
  2. in the case of department heads: the dean, associate dean, key faculty, and administrative officials;
  3. in the case of recruitment of deans: the members of the search committee, faculty as appropriate, and deans and administrative officials; and
  4. in the case of major administrative officials: the members of the search committee, faculty and administrative staff as appropriate, and administrative officials.

Official Guests of the University

Business entertainment of University guests is essential. Examples of official guests would include the following: visiting lecturers; representatives of research organizations; visitors from other universities; individuals interested in University programs and issues (potential donors); guests invited to assist in the development of new programs (both paid and non-paid consultants); and business and community leaders. The relationship between the visitor and the University employees attending the function or their areas of responsibility must be clearly indicated, particularly for those who are at the campus on specific business on behalf of the University.

The University is not normally expected to reimburse official guests for travel and related expenses, except where the guests travel to the University on specific invitation. Reasonable costs of a dinner (or other meal) meeting or a reception which occurs as part of the official guest's visit may be reimbursed as business entertainment.

External Conferences

Business entertainment expenses should be covered from the revenue produced by the event and separate records maintained.

Internal Conferences, Training Sessions, Recognition Events, Business Meetings, and Seminars

A meal, such as a luncheon, and refreshment breaks which are provided as part of a departmental conference, training session, a recognition event for one or more employees, a business meeting, or a seminar are reimbursable as business entertainment expenses. These events are planned in advance, have a written agenda and have a list of attendees. The costs incurred should be prudent and reasonable.

Receptions and Dinner Meetings

Receptions for employees, alumni and friends of the University are reimbursed as business entertainment.

The University may, from time to time, hold dinner meetings for administrative officers, deans, department chairs, and faculty, including guests, for the purpose of discussing items of general University interest. Such meetings are reimbursed by the University as business entertainment.

To see documentation requirements, see University of North Carolina at Chapel Hill Finance Procedure 1263.1 - Paying for Business Entertainment Expenses.

Exclusions

The University does not reimburse for business entertainment expenses that are not part of an accountable plan as defined by the Internal Revenue Service (IRS) in IRS Publication 463: Travel, Gift, and Car Expenses.

Special Situations

1. Taxability of Business Entertainment Expenses

Business entertainment expenses are not taxable to employees when the reimbursements are part of an accountable plan as defined in the federal tax code. Business entertainment expenses are considered part of an accountable plan only if the following three conditions are satisfied:

  1. there must be a business connection for the expenses;
  2. the employee must either substantiate (document) or be deemed to have substantiated (documented) the expenses; and
  3. the employee must return to the University amounts in excess of the substantiated (or deemed substantiated) expenses.

2. Business Connection

The business connection requirement generally is satisfied if the expenses are incurred in connection with the performance of services as an employee.

3. Substantiation

The substantiation requirement is satisfied if enough information is submitted to the University to satisfy the documentation requirements (See University of North Carolina at Chapel Hill Finance Procedure 1263.1 - Paying for Business Entertainment Expenses).

4. Return of Excess Amounts

An employee must return amounts received in excess of those substantiated or deemed substantiated within a reasonable period of time.

5. Tax Regulations

Although many business entertainment expenses would be considered as part of an accountable plan, it is important to adhere to tax regulations to avoid taxability of reimbursements. "Ordinary and necessary" meal and entertainment expenses under an accountable plan will not be reported on the employee's form W-2. In order for a meal or entertainment expense to be considered "ordinary and necessary," the expense must be "directly related to" or "associated with" the active conduct of the trade or business. For example, during the meal, business must be discussed and there must be an expectation of a business benefit such as the hiring of a professional candidate or the obtaining of a gift or bequest from a potential donor. Furthermore, there should be no "substantial distractions" at the site of the meal.

6. Business Meal Requirements

In a typical business meal situation, there will be at least one person present who is not a university employee. It is possible, however, for a University employee to entertain other University employees over a meal and have that meal qualify as a nontaxable meal eligible for University reimbursement. To be considered nontaxable, the meal in question must be considered to be an "ordinary and necessary" business expense "directly related to" or "associated with" the active conduct of University business. Whether or not these requirements are met in a setting where only university employees are present requires judgment based on the facts and circumstances of each case. The courts have looked to the frequency of such meals as one factor in making this determination. For example, a group of business colleagues meeting daily for lunch to discuss bona fide business matters was not held by the courts to satisfy the necessary business requirement noted above. Thus, the fact that a lunch occurs only occasionally lends more credence to its business necessity.

If all of the requirements noted above are met for business meals, the University will reimburse the cost of the meals to either the employee or to the vendor. The cost of business meals is excluded from the employee's gross income and is not subject to withholding or payroll taxes. If the requirements are not met and the University pays the cost, then the expense reimbursement is taxable to the employee as part of a non-accountable plan.

The tax code and related regulations provide that expenses reimbursed under an accountable plan will not be reported on the employee's form W-2, hence the employee need not account for them on his or her tax return.

Procedures

Additional Information

Frequently Asked Questions

Q: Does a staff birthday party qualify as business entertainment?
A: No. Birthdays; baby showers; going-away, farewell, welcome back, or thank you/appreciation parties do not qualify as business entertainment.

Related Data

Contacts

Policy Contact
Subject Contact Telephone Fax E-Mail
Business Entertainment Policy Purchasing Services - Services 919-962-3774 919-962-0636 purchasing_team@unc.edu

History

Revised:

  • January 18, 2019: Updated Finance and Administration to Finance and Operations.
  • December 4, 2017: Added Document 1263.1rd Appropriate Accounts Fund Groups for Business Entertainment Expenses
  • October 1, 2014: Updated reference to campus vouchers in Frequently Asked Questions.
  • June 18, 2014: Removed section on required documentation (linked to relevant procedure).
  • July 20, 2010
  • June 2, 2004
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