Wage recharacterization. This ruling provides guidance for employers under section 62(c) of the Code and the applicable regulations. The ruling clarifies that an arrangement that recharacterizes taxable wages as nontaxable reimbursements or allowances does not satisfy the business connection requirement of the accountable plan rules under section 62(c) and the applicable regulations. Specifically, this ruling includes four situations. Three of the situations illustrate arrangements that impermissibly recharacterize wages, such that the arrangements are not accountable plans. The fourth situation illustrates an arrangement that does not impermissibly recharacterize wages, where an employer prospectively alters its compensation structure to include a reimbursement arrangement.

This procedure provides instructions and information on the Internal Revenue Service's letter-forwarding program. Rev. Proc. 94-22 modified and superseded.