Why are credit card receipts needed?
- FAR 31.205-46(a)(7) states that costs are allowable only if the contract maintains specific documentation to support claimed travel costs. Documentation such as cancelled checks, credit card receipts, and hotel bills are to be maintained as corroboration for expenses, but without the diary or similar records, they may not be sufficient support for deductibility.
What is piercing the corporate veil? (Why can’t I use my company card for personal costs?)
- Many companies set themselves up as a Corporation or LLC in order to protect the shareholders’ personal risk. In other words, Corporations and LLCs are viewed as separate legal entities individual of its shareholders. As such, any legal and/or financial risk associated with the company is limited to the company, and legal or financial obligations are not passed down to the shareholders if the entity can’t meet those obligations. However, there is this thing called “piercing the corporate veil”. Piercing the corporate veil is the ability for a court to bypass the corporate entity and seek legal or financial retribution from its shareholders. Typically, to pierce the corporate veil, the court would have to prove one of a few things like, the corporation and the shareholders acting one in the same (no real differentiation between shareholder and entity), or gross wrongful conduct specifically by the shareholder, intermingling of assets between the corporation and the shareholders, failure to observe corporate formalities (like shareholder meetings, filings, etc), etc.
A shareholder using Corporate assets (cash or credit cards) for personal use would be considered “intermingling of assets”. In other words, the court would be likely to say “If you, the shareholder, were treating the company cash or credit cards like your own personal cash or credit cards, why should we treat the company any different than you? You don’t treat the company as a separate entity, so why should I in this legal matter?” If you use company assets the same way you use personal assets, the court will view you as one in the same, and thus, “pierce the veil”, coming after you personally.
What is the difference between Shareholder Loan & Distribution? (Accidental use of company card for personal expenses)
- A distribution from the company is considered a taxable event. Owners would be taking proceeds from the company profits. A loan is a transaction in which you expect to pay back or be paid back. eg. You need to loan the company money to fund payroll for the week before AR has been received. You expect the company to pay you back once the check comes in.