LIMITATION ON USE OF REIMBURSEMENT ARRANGEMENTS TO AVOID 2-PERCENT FLOOR.

SEC. 702. LIMITATION ON USE OF REIMBURSEMENT ARRANGEMENTS TO AVOID 2-PERCENT FLOOR. (a) General Rule.— Section 62 of the Internal Revenue Code of 1986 (defining adjusted gross income) is amended by adding at the end thereof the following new subsection: “(c) Certain Arrangements Not Treated as Reimbursement Arrangements.— For purposes of subsection (a)(2)(A), an arrangement shall in no event be treated as a reimbursement or other expense allowance arrangement if— “(1) such arrangement does not require the employee to substantiate the expenses covered by the arrangement to the person providing the reimbursement, or “(2) such arrangement provides the employee the right to retain any amount in excess of the substantiated expenses covered under the arrangement. The substantiation requirements of the preceding sentence shall not apply to any expense to the extent that substantiation is not required under section 274(d) for such expense by reason of the regulations prescribed under the 2nd sentence thereof.” (b) Effective Date.— The amendment made by subsection (a) shall apply to taxable years beginning after December 31, 1988.