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IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 01-60535

WORLDWIDE LABOR SUPPORT OF MISSISSIPPI, INC.,
Plaintiff-Counter Defendant-Appellant,
versus
UNITED STATES OF AMERICA,
Defendant-Counter Claimant-Appellee.

Appeal from the United States District Court
For the Southern District of Mississippi

November 15, 2002
Before KING, Chief Judge, and HIGGINBOTHAM and EMILIO M. GARZA,
Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Worldwide Labor Support of Mississippi, Inc. appeals the
district court's grant of summary judgment to the government in the
amount of $2,019,888.77 for employment taxes, accruals of interest,
and statutory additions. The district court held that the hourly
per diem travel expense reimbursements made by Worldwide to its
non-local employees were taxable wages. W e v a c a t e t h e s u m m a r y
judgment and remand for further proceedings.
I
Worldwide provides temporary skilled labor to industrial and
commercial businesses, including Caterpillar, Inc. Facing labor

difficulties, Caterpillar from July 1994 through December 1995
leased workers from Worldwide.
Many of the workers remained at the Caterpillar job site in
Aurora, Illinois seven days a week. In addition to an hourly wage,
Worldwide paid an additional amount per hour to employees who lived
more than 100 miles from the Caterpillar site as reimbursement for
lodging, meals, and incidental expenses. While non-local employees
received two fifty-cent increases in their hourly per diem after
each of their first two months on the job, local employees to whom
no per diem was paid instead received fifty-cent raises in their
salaries. The per diem paid to non-local employees was computed on
both regular hours and overtime hours. As a result, employees who
were away from home for the same amount of time received different
per diem payments because some worked more hours than others. No
employment, unemployment, or income tax was paid on the amounts of
these reimbursements.
The government audited the 1995 federal employment tax returns
of Worldwide, determining that Worldwide was required to pay tax on
the amounts of the per diem payments and assessing additional
employment taxes. Worldwide paid $4,798.21, the amount assessed in
each quarter for one of its employees and filed a claim for a
refund of the amounts paid. The government denied the refund.
On March 2, 2000, Worldwide filed a claim in federal district
court requesting a refund of the $4,798.21. The government
counterclaimed for the unpaid balance of the assessments as to all
2

of the Worldwide employees who were paid travel expense
reimbursements in the four quarters of 1995. The district court
granted the government's motion for summary judgment and entered
final judgment awarding the government $2,991,925.76. Worldwide
timely appealed.
II
The central question here is whether the monies paid on a
hourly per diem basis by Worldwide to its non-local employees as
reimbursed travel expenses count as "wages" which are subject to
employment taxes. These payments are not subject to employment
taxes if the payments are made subject to an "accountable plan"
pursuant to 26 U.S.C. §§ 62(a)(2)(A) and 62(c), as defined by
Treas. Reg. § 1.62-2(c).1 A plan is "accountable" when (1) it
covers only expenses with a business connection;2 (2) all expenses
are substantiated to the employer;3 and (3) the employee is
required to return to the employer any amount paid in excess of
substantiated expenses.4 If a plan does not meet these criteria, it
is considered "nonaccountable" and is subject to withholding and
employment taxes.5
1 See Treas. Reg. § 1.62-2(h)(1).
2 Id. at 1.62-2(d).
3 Id. at 1.62-2(e).
4 Id. at 1.62-2(f).
5 Id. §§ 1.62-2(c)(3)(i) & 1.62-2(c)(5).
3

The regulations also specify how per diem arrangements such as
Worldwide's can meet these requirements. A per diem allowance for
travel expenses can meet the business connection requirement if it
is "computed on a basis similar to that used in computing the
employee's wages or other compensation (e.g. the number of hours
worked, miles traveled, or pieces produced)" as long as "a per diem
allowance computed on that basis was commonly used in the industry
in which the employee is employed" on December 12, 1989.6
The substantiation requirement under the facts of this case is
governed by rules promulgated in Rev. Proc. 94-77, which allow the
reimbursement of travel expenses under a per diem plan in lieu of
the substantiation of each expense as would otherwise be required.
The rules provide that the amount of a per diem allowance deemed
substantiated for each calendar day "is equal to the lesser of the
per diem allowance for such day or the amount computed at the
Federal per diem rate for the locality of travel for such day."7
Under Rev. Proc. 94-77, the returning amounts in excess of
expenses requirement is satisfied under a per diem arrangement as
long as employees are required to return allowances that "relate[]
to days of travel not substantiated . . . even though the
arrangement does not require the employee to return the portion of
6 Id. § 1.62-2(d)(3)(ii) (emphasis added).
7 Rev. Proc. 94-77, 1994-2 C.B. 825, § 4.01.
4

such an allowance that . . . exceeds the amount of the employee's
expenses deemed substantiated."8
III
This court reviews a grant of summary judgment de novo,
applying the same standard as the district court.9 The district
court granted the government's motion for summary judgment because
it concluded that the hourly per diem amounts paid by Worldwide
were not made with the reasonable expectation that the employees
would actually incur travel expenses in the amounts paid as an
hourly per diem. Worldwide argues that there is a genuine issue of
material fact as to whether its plan was reasonably calculated not
to exceed the amount of expenses incurred by its employees. As the
government argues, however, under Worldwide's arrangement,
employees who should have been expected to incur similar travel
expenses received dramatically different reimbursements because
they worked more hours in the same number of days. Employees,
particularly those who worked overtime, would inevitably receive
reimbursements in excess of their reasonably anticipated expenses
under Worldwide's scheme.
Worldwide relies on the Eleventh Circuit's decision in Trucks,
Inc. v. United States.10 In Trucks, a trucking company reimbursed
8 Id. § 7.02; see also id. § 2.07.
9 Holtzclaw v. DSC Communications Corp., 255 F.3d 254, 257 (5th Cir.
2001).
10 234 F.3d 1340 (11th Cir. 2000).
5

truckers for expenses on a per diem rate based on the "load
revenue," which was calculated "primarily by the number of miles
driven, but is modified to account for weather, unloading and
reloading, and road conditions in the particular area."11 Because
the truck drivers were not required to turn in receipts and
received the per diem even if they slept in their trucks instead of
paying for lodging, reimbursement amounts could greatly exceed
expenses.
In Trucks, as here, the appeal turned "on the question of
whether Trucks, Inc. reasonably anticipated and calculated the
drivers' expenses before reimbursing them."12 Reversing the district
court, the Eleventh Circuit concluded that "the focus of the
business connection test is on the employer's reasonable
expectations, not the drivers' actual expenditures. These questions
of reliability and state of mind fall within the purview of the
jury."13 Applying that analysis to the trucking company at issue in
that case, the Trucks court held that "[t]he reasonableness of both
Trucks's calculations and anticipations is a jury question and not
appropriate for summary judgment because Trucks has produced some
evidence that its plan met the IRS requirements at the time."14
11 Id. at 1340.
12 Id. at 1343.
13 Id. at 1343-44 (citation omitted).
14 Id. at 1344.
6

We find this reasoning persuasive. We conclude that whether
the employer reasonably anticipated and calculated its employees'
travel expenses in the course of developing its reimbursement
arrangement is essentially one of state of mind and that, so long
as the employer produces summary judgment evidence that amounts to
more than "'conclusory allegations, improbable inferences, and
unsupported speculation,'" the issues of reasonableness and state
of mind are proper questions for the jury and should not be decided
on summary judgment.15
It is of no moment that Trucks and the other cases cited by
the parties applying Treas. Reg. § 1.62-2 all involve the
transportation industry, particularly truck drivers and messengers
and couriers. Section 1.62-2 explicitly allows hourly per diem
plans to qualify, under certain circumstances, as accountable plans
without limitation as to the industry involved, despite the
government's claim at oral argument that section 1.62-2's
provisions are intended for application only to truck drivers,
pilots, and messengers. Moreover, there is no dispute in this case
that it was the custom in Worldwide's industry­the skilled
temporary labor industry­on December 12, 1989 to use hourly per
diem travel reimbursement arrangements.
15 Int'l Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1265 (5th Cir.
1991) (quoting Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir.
1990)).
7

Applying the reasoning of Trucks, we observe that Worldwide
produced considerable summary judgment evidence of research it
undertook to determine its per diem rates. In particular, Worldwide
provided testimony by its president in his deposition, which
describes the investigation Worldwide undertook before setting its
rates. We leave to the jury the question of whether Worldwide's
reimbursements were reasonably calculated not to exceed the amount
of the expenses incurred by its employees.
However, the government argues that, even if Worldwide had the
expectation that its payments were calculated to meet and not
exceed expenses, this expectation was not reasonable as a matter of
law. This is essentially what the district court found, and is the
argument urged by the dissent. It is the central issue in this
case. Worldwide attempts to answer this argument by pointing to a
compilation of 1995 travel expense reimbursement records in the
summary judgment evidence demonstrating that only 7.3% of its
weekly reimbursements exceeded the federal weekly per diem rate
and, in the aggregate for the year, its 1995 hourly per diem
payments only varied from the federal weekly per diem rate
aggregated over the same number of weeks by .76%.16
As the government and the dissent point out, the problem with
Worldwide's argument is that the federal weekly per diem rate is
not a reasonable guide because Worldwide's own research showed that
16 This $462 rate is based on a seven-day week, so it corresponds to a $66
daily rate.
8

the expenses its employees would likely incur for lodging and meals
at local establishments was significantly less than that provided
for by the federal weekly per diem rate for the locality.
Specifically, the government argues that the federal lodging per
diem for the locality is $40 per day and the meals and incidental
expenses per diem is $26 per day, but Worldwide's research showed
(according to an information sheet it provided to new hires) that
its employees could find motel rooms for $21.00 to $32.50 per night
with up to $26 per day for meals and incidental expenses. As such,
the government argues that Worldwide's plan fails to meet the
requirements of section 1.62-2 based on Worldwide's own research.
We are not persuaded, however, that judgment as a matter of
law was appropriate. A jury could find that Worldwide reasonably
anticipated each employee would generally receive either $48, $52,
or $56 per day in travel reimbursements for working an eight-hour
day.17 This is only slightly more than the $47 per day that
Worldwide's research showed that one of its employees would be
required to spend if he stayed at the least expensive hotel in a
double-occupancy room, is slightly less than the $58.50 per day in
travel expenses Worldwide's research showed its employee would
incur if he stayed at the most expensive hotel in a single-
occupancy room, and is considerably less than the $66 per day the
federal government reimburses its employees working away from home
17 These rates are based upon an eight-hour day at a $6.00, $6.50, or
$7.00 hourly per diem rate.
9

in the same locality. Thus based on the summary judgment evidence
relied upon by the government, a jury could find that Worldwide's
reimbursement payments are reasonably calculated not to exceed the
amount of its employees' anticipated expenses. Moreover, the
extent to which Worldwide's expectation was not reasonable because
Worldwide knew or should have known that some or even many of its
non-local employees would work overtime is quintessentially a fact
issue as to reasonableness and state of mind for the jury to decide
based on its assessment of the witness testimony and evidence
presented to it.
The government and the dissent urge that a daily per diem plan
would better meet the requirements of Treas. Reg. § 1.62-2, as
would an hourly per diem plan which did not reimburse based on
overtime hours worked. The question before us, however, is not what
plan Worldwide might have used but the conformity of the plan it
did use. Any hourly per diem arrangement will not bear a strict
logical relation to anticipated expenses that are incurred on a
daily and not hourly basis. Yet the government's own regulations in
Treas. Reg. § 1.62-2 and Rev. Proc. 94-77 explicitly allow for
hourly per diem arrangements to qualify as accountable plans under
section 1.62-2.18 This argument seems to whistle past the
government's own regulations.
18 See, e.g., Treas. Reg. § 1.62-2(d)(3)(ii); see also Rev. Proc. 94-77,
1994-2 C.B. 825.
10

The dissent disputes this point, arguing that flight
attendants and truck drivers incur expenses that are proportional
to the number of hours worked, but Worldwide employees did not.
This is not the case. A flight attendant who works eight hours a
day pays the same price for a hotel room as a flight attendant who
works for ten hours. Insofar as some expenses are incurred on a
daily­as opposed to hourly­basis, an hourly per diem arrangement
will not perfectly correspond with these expenses. Given that the
regulations permit hourly per diem arrangements, the question
cannot be whether the per diem perfectly corresponds to the
expenses incurred but rather whether it is reasonably calculated to
reimburse employees for their expenses. We believe that there is
enough summary judgment evidence here to permit the jury to
determine that question.
The case relied upon by the government and the dissent, the
Ninth Circuit's decision in Shotgun Delivery, Inc. v. United
States,19 can be distinguished from the case before us. In Shotgun,
a messenger and courier service employed drivers who used their own
vehicles to make pick-ups and deliveries. Shotgun billed its
customers based primarily on the mileage from the pick-up to the
delivery location, which did not necessarily reflect the actual
driving distance because drivers often "doubled up," carrying more
19 269 F.3d 969 (9th Cir. 2001).
11

than one customer's package at a time.20 Shotgun also charged
surcharges for waiting time, rush delivery, and excessive weight,
further weakening any direct relationship between delivery charges
and miles driven in making the deliveries.21
Shotgun paid its drivers a commission basis, amounting to 40%
of the delivery charges for the jobs they completed, but issued two
checks in order to avoid employment taxes:
The first check (the "wage check") compensated the
drivers, at the minimum wage, for the hours they worked.
Shotgun withheld the appropriate employment taxes from
the wage checks. The second check (the "mileage check")
was issued in an amount equal to 40% of the receivables
on that drivers' deliveries less the amount paid via the
wage check. In other words, the two checks together
always amounted to 40% of the delivery charges
attributable to that driver.22
Shotgun did not deduct employment taxes from the mileage checks or
pay employment taxes on these amounts because it argued its
reimbursement arrangement was an accountable plan under section
1.62-2.
The Ninth Circuit distinguished Trucks, noting that "Trucks,
Inc. allotted a uniform 6% of revenues on each load to reimburse
driver expenses, whereas the percentage Shotgun paid as
reimbursement fluctuated, with its 40% commission going first to
cover wages (paid at the minimum allowed by law), and then to a
20 Id. at 970.
21 Id.
22 Id. at 971.
12

variable remainder (i.e. as much as possible) paid as
reimbursement."23 The court concluded that "the evidence suggests
that the plan's primary purpose was to treat the least amount
possible of the drivers' 40% commission as taxable wages."24
Like Trucks, the instant case is distinguishable from Shotgun.
Although there were variations among the per diem reimbursements
received by individual Worldwide employees on any given day of non-
local work, particularly for those who worked overtime, Worldwide's
arrangement did not admit of such a wide variance as Shotgun's
system plainly condoned. In Shotgun, there was evidence that
Shotgun's arrangement was designed primarily to hide taxable wages,
a central target of section 1.62-2. The government makes no
contention that Worldwide's plan was designed primarily for tax
avoidance.
IV
The government argues alternatively that a portion of the
payments under Worldwide's arrangement fails to meet the deemed
substantiated requirements of Rev. Proc. 94-77 for another reason:
Because Worldwide computed its per diem payments on the basis of
hours worked, under section 4.02(5) of Rev. Proc. 94-77 the per
diem is treated as a "meals only" per diem allowance and can be
deemed substantiated only up to the amount of the Federal M & IE
23 Id. at 972-73 (citation omitted).
24 Id.
13

rate, which was $26 per day during 1995 in Aurora, Illinois. Thus,
the government argues that, even if Worldwide's plan were to
survive the other tests, only $26 per day could be deemed
substantiated in satisfaction of Treas. Reg. § 1.62-2(e) for which
Worldwide would not owe employment taxes. Worldwide responds that
the government misreads section 4.02 of Rev. Proc. 94-77 because
reading it to require all hourly per diem arrangements to be
limited to "meals only" would render the industry custom exception
in section 3.03(2) of Rev. Proc. 94-77 for hourly per diem plans
void. We agree with the government.
First, the government does not contend that Worldwide's
arrangement did not qualify as an accountable plan simply because
some of the employees' reimbursements exceeded those available
under the federal rate. Nor could it make such a claim given the
express provisions of Treas. Reg. § 1.62-2.25 Worldwide will owe
employment taxes on those amounts which exceed the federal rate,
but this will not undermine a finding in favor of Worldwide as to
the entire arrangement's eligibility as an accountable plan.26
Second, as a matter of a plain reading of Rev. Proc. 94-77,
the government has the better of this argument. Treas. Reg. §
1.62-2(c)
requires
that
the
business
connection
test,27
25 See Treas. Reg. §§ 1.62-2(c)(1), 1.62-2(d)(2), 1.62-2(i).
26 See id. § 1.62-2(h)(2)(i)(B); Rev. Proc. 94-77, 1994-2 C.B. 825, §
8.01.
27 Treas. Reg. § 1.62-2(d).
14

substantiation requirement,28 and return of amounts in excess of
expense requirement29 be met for a plan to qualify under § 162.2.
An hourly per diem plan can satisfy the business connection test
"only if, on December 12, 1989, ... a per diem allowance computed
on that basis was commonly used in the industry in which the
employee is employed."30 The Commissioner has authority to prescribe
rules to determine to what extent an hourly per diem plan satisfies
the substantiation and return of excess requirements.31
In exercising this power, the Commissioner promulgated Rev.
Proc. 94-77. Section 3.03(2) provides that a plan which is
computed on a basis such as hours worked is not a "per diem
allowance" unless it meets the industry custom exception. As
stated above, this is already a requirement under Treas. Reg. §
1.62-2(d)(3)(ii) for such a plan to meet the business connection
test.
In addition, Section 4 of Rev. Proc. 94-77 then more
specifically provides the rules under which reimbursements under a
per diem plan can be deemed substantiated to meet the
substantiation requirement of sections 1.62-2(e). Section 4.02
specifically limits per diem arrangements that are "computed on a
28 Treas. Reg. § 1.62-2(e).
29 Treas. Reg. § 1.62-2(f).
30 Treas. Reg. § 1.62-2(d)(3)(ii).
31 Treas. Reg. §§ 1.62-2(e)(2), 1.62-2(f)(2).
15

basis similar to that used in computing the employee's wages or
other compensation (e.g., the number of hours worked, miles
traveled, or pieces produced)" to a "meals only per diem
allowance." A meals only per diem allowance is capped at the
Federal M & IE rate by section 4.02.
In so doing, the revenue procedure is not contrary to any
express provision of or allowance under Treas. Reg. § 1.62-2.32
Section 1.62-2 imposes several requirements for hourly per diem
plans to be eligible for accountable plan status, including the
business connection test which can be satisfied by the industry
custom exception under section 1.62-2(d)(3)(ii). But § 1.62-2
leaves to the Commissioner how such plans may be excepted from the
usual substantiation and returning amounts in excess of expenses
requirements.
Section 3.03(2) simply incorporates the additional requirement
of Treas. Reg. § 1.62-2(d)(3)(ii) for all three prongs of the
accountable plan test as it applies to hourly per diem plans. That
section 3.03(2)(b) also includes the industry custom exception to
meet this requirement does not mean that section 3.03(2)(b)
excludes the meals only limitation of section 4.02(5) from any
hourly per diem plan that meets the industry custom exception.
That exception may be used to meet a threshold requirement under
32 See Clark v. Modern Group Ltd., 9 F.3d 321, 335 (3d Cir. 1993)
("Treasury regulations take precedence over contrary revenue procedures because
the latter are intended primarily as a guide to taxpayers.") (citing cases).
16

section 3.03(2), not as a free pass to obtaining accountable plan
status when the hourly per diem plan does not otherwise meet the
provisions of Treas. Reg. §§ 1.62-2(e) and 1.62-2(f) requiring
substantiation and returning amounts in excess of expenses, both of
which Worldwide's employees admittedly did not do. Indeed,
Worldwide's reading would render section 4.02(5) of Rev. Proc. 94-
77 void, because the substantiation and returning amounts in excess
of expenses requirements do not even come into play for any hourly
per diem plan that does not first meet the threshold requirement of
Treas. Reg. § 1.62-2(d)(3)(ii) and section 3.03(2) of Rev. Proc.
94-77.33
In sum, if an hourly per diem plan can meet the requirements
of Treas. Reg. §§ 1.62-2(e) and 1.62-2(f) without resort to the
excepting provisions of Rev. Proc. 94-77, the plan can qualify as
an accountable plan while reimbursing lodging as well as meals and
incidental expenses. The Commissioner, by promulgating Rev. Proc.
94-77, has not contradicted Treas. Reg. § 1.62-2 by limiting the
exceptions to the usual substantiation and returning amounts in
excess of expenses requirements therein--which he is permitted to
provide by rule--to per diem plans covering only meals and
incidental expenses.
33 It is worth noting that the only hourly per diem described in Rev.
Proc. 94-77 is a meals only per diem allowance. See Rev. Proc. 94-77, 1994-2
C.B. 825, § 3.03(1).
17

Worldwide argues, in the alternative, that section 4.02(5) of
Rev. Proc. 94-77 is not binding on this court. We reject this
argument on two grounds. First, Worldwide could not satisfy the
substantiation and returning amounts in excess of expenses
requirements without the provisions of Rev. Proc. 94-77. Second,
the revenue procedure is not contrary to the governing regulation,
as we have just discussed, and so is not rendered non-binding under
the facts of this case by virtue of section 1.62-2. In short,
Worldwide must accept Rev. Proc. 94-77 and its limitations in its
entirety or fail altogether in its quest for tax-exempt status for
its travel expense reimbursement payments.
The government urges that we remand to the district court for
consideration of what portion of Worldwide's payments qualified
under Treas. Reg. § 1.62-2(e) and Rev. Proc. 94-77, presumably on
summary judgment, along with two additional charges against certain
portions of Worldwide's payments. We conclude, however, that
consideration of these matters are proper for the district court to
address pretrial, to the extent they may be resolved as a matter of
law, or by the jury at trial. We will not, however, without more,
remand with instructions that these issues be addressed on a
hypothetical motion for summary judgment.
V
18

We vacate the district court's grant of summary judgment to
the government and remand for further proceedings consistent with
this opinion.34
VACATED AND REMANDED.
34 With our decision to vacate the district court's judgment, we need not
address Worldwide's challenge to the penalty assessed against it.
19

EMILIO M. GARZA, Circuit Judge, dissenting:
This case requires us to determine whether the purported
reimbursement payments made by Worldwide Labor Support Services
("Worldwide") to its temporary employees for meals, lodging and
other incidental expenses constituted wages for which federal
employment taxes must be paid. In order to avoid the imposition of
employment taxes, Worldwide's reimbursement plan must qualify as an
"accountable plan" pursuant to the requirements of 26 C.F.R. §
1.62-2(d) - (f). As the majority opinion clearly explains, the
process of determining whether a plan meets these requirements is
complex, involving several distinct inquiries. For purposes of
this appeal, however, the critical issue is whether Worldwide's
plan was reasonably calculated not to exceed the amount of expenses
or anticipated expenses actually incurred by its employees. The
majority opinion concludes that Worldwide has established a genuine
issue of material fact as to whether its plan was reasonably
calculated to reimburse actual or anticipated expenses. In
contrast to the majority opinion, I believe Worldwide has failed to
make such a showing because their reimbursement scheme bares no
-20-

logical relationship to the actual or anticipated expenses of
Worldwide's employees.35
Worldwide's method of calculating reimbursement expenses
resulted in differing amounts of compensation to employees who were
working on the same site and likely incurring similar expenses.
Worldwide's reimbursement plan for the Caterpillar site initially
compensated temporary employees living more than 100 miles from the
plant $6.00 per hour worked for meals, lodging and other incidental
expenses. In determining the reimbursement amount for each
employee, Worldwide included both regular and overtime hours. In
addition, an employee who worked at the Caterpillar site for more
than one month received a fifty-cent increase in hourly
reimbursements. After two months at the site, Worldwide gave its
employees an additional fifty-cent increase, raising the hourly
reimbursement rate to $7.00. Thus, two employees working at the
Caterpillar
site
could
receive
substantially
different
reimbursement amounts depending on the total number of hours each
employee worked during the week, as well as the amount of time they
had been on the site. As a result, Worldwide reimbursed many
employees for amounts greater than their own research indicated was
the maximum amount of anticipated expenses each employee would
35It is important to note that even though this case comes to us on summary
judgment and therefore the record must be viewed in the light most favorable to
the non-movant, Worldwide, as a taxpayer, still bears the burden of proof as to
whether the government's tax assessment was erroneous, as well as the amount of
the refund due from the government. Brown v. United States, 890 F.3d 1329, 1334
(5th Cir. 1989).
-21-

incur. Given this fact, no rational jury could find that
Worldwide's plan was reasonably calculated not to reimburse its
employees for amounts in excess of actual or anticipated expenses.
Worldwide has not presented any evidence that these
disparities reflected differences in the actual expenses of its
employees at the Caterpillar site. Instead, the evidence suggests
that employees incurred similar lodging and meal expenses
regardless of the number of hours worked. Worldwide's employees
paid for lodging by night, not by hour. Thus, an employee who
worked forty hours per week, but stayed in a hotel for six nights,
would incur identical costs as an employee who worked sixty hours
that week, but stayed in the same hotel for six nights. As such,
I do not believe that any rational trier of fact could have found
that Worldwide's plan was reasonably calculated not to exceed the
actual expenses of its employees.
Worldwide's employment records indicate that the actual
amounts Worldwide reimbursed frequently exceeded the amount of
expenses Worldwide anticipated each employee would incur.
Worldwide estimated that its employees would spend a maximum of
$58.50 per day or $409.50 per week on meals and lodging.
Worldwide's payment records for the period ending August 6, 1995,
reveal that it paid sixty-six workers more than the amount their
research suggested was the maximum weekly expenses of their
employees. Thus, under Worldwide's plan, in one pay period, about
-22-

one-quarter of their workforce was reimbursed for more than what
Worldwide anticipated was the maximum amount of weekly expenses.
Moreover, several of Worldwide's employees received reimbursement
payments that far exceeded Worldwide's maximum estimates of $409.50
per week. For instance, Quentin Lee received $609.00 in
reimbursements during the August 6 pay period and Danny McGhee
received $563.50. Again, given this evidence, no reasonable jury
could find that Worldwide's plan was reasonably calculated to
compensate its employees for their anticipated expenses.36
The majority opinion attempts to counter this evidence by
pointing out that an employee working eight hours per day would be
36Worldwide relies heavily on the fact that only seven percent of its
reimbursement payments exceeded the federal per diem rate of $66. As the
majority opinion concedes, however, Worldwide's reliance on the federal rate is
not availing because its own research indicated that the anticipated expenses of
its employees would be below the federal rate for the locality. Revenue
Procedure 94-77, which defines a "per diem allowance" provides:
The term "per diem allowance" means a payment under a reimbursement or
other expense allowance arrangement that meets the requirements specified
in § 1.62-2(c)(1) and that is

(1) paid with respect to ordinary and necessary business expenses
incurred, or which the payor reasonably anticipates will be
incurred, by an employee for lodging, meal, and/or incidental
expenses for travel away from home in connection with the
performance of services as an employee of the employer,

(2) reasonably calculated not to exceed the amount of the expenses
or the anticipated expenses, and

(3) paid at the applicable Federal per diem rate, a flat rate or
stated schedule, or in accordance with any other Service-specified
rate or schedule.
Rev. Proc. 94-77 § 3.01. Under this regulation, the reimbursement payment must
be reasonably calculated not to exceed actual or anticipated expenses and must
be paid at the federal per diem rate or at a flat rate or stated schedule. Thus,
even if Worldwide reimbursed its employees at the applicable federal rate,
because its research indicated that its employee's actual and anticipated
expenses were significantly lower, its payments would not be reasonably
calculated to reimburse the amount of its employees' expenses or anticipated
expenses under the regulations.
-23-

reimbursed for an amount within Worldwide's anticipated expense
range, regardless of whether that employee was paid $6.00, $6.50,
or $7.00 per hour. Thus, they contend that a rational jury could
find that Worldwide's plan was reasonably calculated to reimburse
its employees' anticipated expenses. The majority opinion is
correct that a jury could find that reimbursement payments paid to
employees who did not work any overtime hours fell within
Worldwide's anticipated expense range. The problem with the
majority's argument, however, is that many of Worldwide's employees
regularly worked overtime, exceeding the maximum amount of meals
and lodging expenses Worldwide anticipated its employees would
incur as a result. Because Worldwide's employees regularly worked
overtime hours, the fact that any payments fell within Worldwide's
anticipated expense range was merely coincidental. A rational jury
could not ignore these additional overtime reimbursement payments
in determining whether Worldwide's plan was reasonably calculated
to reimburse actual or anticipated expenses. Moreover, the
rational jury could not ignore the fact that Worldwide regularly
reimbursed its employees for more than what its own research
indicated was the maximum amount of expenses per week because it
included overtime hours in those reimbursement calculations.
The majority opinion finds that, if it were to accept the
government's argument, no hourly per diem reimbursement arrangement
could qualify as an accountable plan under the regulations. This
-24-

result seems unacceptable, since the regulations explicitly
authorize such arrangements. The majority opinion, however,
misinterprets the government's position. The government does not
argue, as the majority contends, that an hourly per diem
reimbursement method must exactly reimburse employees for expenses.
Instead, the government merely contends that such an arrangement
must be reasonably calculated to reimburse employees only for
actual or anticipated expenses. In other words, the plan need not
always reimburse employees for the expenses they actually incurred,
but it must be structured in such a way so that there is some
probability that it will do so.
In certain contexts, an hourly per diem plan such as
Worldwide's could be reasonably calculated to reimburse only actual
or anticipated expenses. For instance, the I.R.S.'s revenue
procedures cite the example of a pilot or flight attendant who is
traveling away from home. See Rev. Proc. 94-77 § 3.03(1). In that
context, it is reasonable to conclude that the more hours a flight
attendant or pilot works, the longer they will be away from home,
and the more reimbursable expenses they will incur for lodging and
meals. Thus, there is a logical relationship between the number of
hours worked by a pilot or flight attendant and the amount of
expenses incurred.37
37 The majority opinion attempts to undermine this reasoning by pointing
out that "[a] flight attendant who works eight hours a day pays the same price
for a hotel room as a flight attendant who works for ten hours." Thus, the
flight attendants' hourly per diem arrangement will "not perfectly correspond"
-25-

In contrast, Worldwide has not established any relationship
between the hours worked by its employees and the expenses they
incurred. As the majority opinion concedes, Worldwide's plan
resulted in employees who were away from home for the same amount
of time receiving different per diem payments. Because Worldwide's
employees were away from home for the same period of time,
regardless of whether they worked eight, ten, or twelve hours a
day, they incurred roughly the same amount of reimbursable
expenses. Nevertheless, they received different reimbursement
amounts. Thus, Worldwide's plan, unlike the hourly per diem
payments to pilots or flight attendants, was not reasonably
calculated to reimburse Worldwide's employees for the expenses they
incurred.
The preceding point is critical because the majority opinion
relies heavily on the Eleventh Circuit's decision in Trucks, Inc.
v. United States, 234 F.3d 1340 (11th Cir. 2000), to support its
decision. In Trucks, the plan at issue reimbursed truckers for
their expenses on a per diem rate based on the "load revenue" the
drivers earned. The load revenue was calculated primarily by the
number of miles driven, but also took additional factors such as
to the employees' expenses. The majority opinion appears to overlook that the
regulations do not require a perfect correlation. They require only that an
employer's reimbursement system be reasonably calculated not to exceed an
employee's expenses. In the majority opinion's hypothetical, the two flight
attendants might incur the same expenses for lodging, but would not necessarily
incur the same charges for meals. As a result, it might make sense to reimburse
them differently. There is certainly a reasonable relationship between the
flight attendants' hours and reimbursable expenses.
-26-

weather, unloading and reloading time, and road conditions into
account. Id. at 1341. Thus, load revenue roughly approximated the
amount of time a truck driver would be driving. The greater the
load revenue earned by a truck driver, the more time he would be
away from home and the more expenses for meals and lodging he would
incur. Given this fact, the court concluded that Trucks had
provided sufficient evidence that its plan was reasonably
calculated not to exceed the anticipated expenses of its employees
to preclude summary judgment.
Worldwide's reimbursement scheme, however, is distinct from
the one the court dealt with in Trucks because Worldwide's
employees' expenses did not increase with each additional hour
worked. Rather, I find the Ninth Circuit's decision in Shotgun
Delivery, Inc. v. United States, 269 F.3d 969 (9th Cir. 2001),
persuasive in this instance. Shotgun involved a messenger company
whose drivers used their own vehicles to make pick-ups and
deliveries. Shotgun's reimbursement scheme paid its drivers a
forty percent commission on each delivery in two checks. The first
check compensated the drivers for the number of hours they worked.
The amount paid for hourly wages then was deducted from the forty
percent commission and the remainder was included in a second check
which purported to cover mileage expenses. As a result of this
plan, the lesser number of hours each employee worked to make his
or her deliveries resulted in a greater amount of tax-free
-27-

compensation. The court concluded that Shotgun's plan did not
qualify as an "accountable plan" because the "key determinant
driving the [reimbursement] allocations [was] hours worked, a
factor that [bore] little, if any, correlation with mileage
expenses." Id. at 973. The court went on to state that "Shotgun
drivers doing identical routes with identical delivery charges
could receive additional compensation distributions that differed
according to driving time." Id.
Similar to Shotgun's plan, Worldwide's method of reimbursing
employees bears little, if any, correlation to the actual expenses
its employees incurred.38 Moreover, underlying the Shotgun decision
was evidence that Shotgun was attempting to encourage certain types
of employee behavior at the expense of the government. In essence,
a Shotgun employee who made faster deliveries, thereby working
fewer hours, would receive a greater portion of his or her check
tax free. Here, Worldwide's workers have a similar incentive to
work more overtime hours so as to receive larger, tax-free
reimbursements. Because these amounts often exceed their
anticipated daily expenses, Worldwide's employees essentially
38The majority opinion asserts that Shotgun is distinguishable from this
case because Worldwide's arrangement "did not admit of such a wide variance as
Shotgun's system plainly condoned." Yet, Worldwide's employment records
establish that some employees received more than double the amount of
reimbursement payments of other similarly situated employees. Moreover,
Worldwide paid several employees in excess of one hundred dollars per week over
the sum they calculated to be the maximum amount of weekly expenses. Given these
facts, it seems difficult to believe that Worldwide's plan did not condone as
wide of a variance in reimbursement payments as the one at issue in Shotgun.
-28-

receive a tax-free bonus if they work overtime. Thus, Worldwide's
particular reimbursement method, like the one in Shotgun,
encourages its employees to engage in conduct beneficial to the
company.
Given the evidence presented, no rational jury could find that
Worldwide's plan was reasonably calculated to reimbursement its
employees for their actual or anticipated expenses. Thus, I
believe the district court correctly found that Worldwide's
reimbursement plan did not qualify as "accountable plan" under the
regulations. For the foregoing reasons, I would AFFIRM the
judgment of the district court.
-29-

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