New tax rules have made the once-common tool and car allowances pretty much dead as expense reimbursement methods. A taxpayer employed a number of service technicians who performed their work at customers’ work sites using their own tools, ranging from simple wrenches to power tools and computer analysis equipment.

A promoter approached the taxpayer and convinced the taxpayer that he could save on taxes by converting part of the technicians’ W-2 wages to an allowance for tools.

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