Section of Taxation Publications
  VOL. 55
NO. 3
Contents | TTL Home

 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
Evaluating Section 62 Accountable Plans and the Reasonable Reliance Defense: Shotgun Delivery, Inc. v. United States
Dana A. Ehrlich


In Shotgun Delivery, Inc. v. United States, the Ninth Circuit Court of Appeals affirmed a district court’s grant of summary judgment against a courier service, agreeing that automobile expense allowances paid to the service’s drivers were wages subject to withholding, rather than tax-exempt reimbursements under a section 62 “accountable plan.” However, the Ninth Circuit reversed the district court’s grant of summary judgment assessing penalties against the courier service. The Ninth Circuit remanded for jury determination the issue of whether the courier service can be said to have reasonably relied on the advice of its accountant in creating its wage structure where it did not follow this advice strictly. In doing so, the Shotgun court addressed two important issues. First, the decision stands as a declaration that the requirements of section 62 accountable plans will be strictly enforced. While the judiciary sometimes interprets sections of the Code more broadly than the Service might like, the decision in Shotgun shows the court’s recognition of the possibility of accountable plan abuse. Second, the decision questions the extent to which a taxpayer may depart from his accountant’s advice and still successfully claim a reasonable reliance defense.

This Note examines the policy interests underlying these two important issues. Part I summarizes the facts of the case. Part II offers the statutory framework and relevant regulations behind section 62 accountable plans. Part III explains the holding of the case and reviews the court’s analysis. Part IV analyzes the decision and argues that the while the court correctly decided both issues, it could have been more instructive in its application of the law. Finally, Part V discusses the implications of the case for tax professionals. 


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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