The 2017 Tax Cuts and Jobs Act included Section 67(h), which eliminated miscellaneous itemized deductions for tax years beginning after December 31, 2017. The 2025 One Big Beautiful Bill Act made that disallowance permanent. One such eliminated deduction is for unreimbursed employee expenses. They include expenses for transportation, travel fares, lodging away from home, business meals, continuing education courses, subscriptions and dues to professional materials and organizations, uniforms, job hunting expenses, and otherwise deductible home office expenses. To have been deductible, such expenses must not have been reimbursed or reimbursable by the business for which the employee worked. Under current law, however, unreimbursed employee expenses are simply nondeductible.

These changes did not eliminate the similar deductions for unreimbursed partner expenses. They arise where a partner is required to cover partnership expenses out of his or her own pocket and is not able to obtain reimbursement from the partnership. The partner can claim the expenses as a deduction on her personal return and obtain the same tax benefit as if the expenses were incurred by the partnership, reducing partnership income that is passed through to the partner.

For unreimbursed partner expenses to be deductible, the partnership agreement (or operating agreement in the case of a limited liability company) must require partners to pay certain expenses and expressly provide the partnership will not reimburse the partners. Otherwise, the partners can seek reimbursement from the partnership, and the partnership can report the business expenses on the partnership’s Form 1065. Unreimbursed partner expenses that have been found deductible include compensation of partnership employees, travel and entertainment expenses, automobile expenses, travel expenses, meal costs, the cost of professional services, the cost of business publications, and club dues.

Courts have found deductions were not appropriate where the partnership had a policy of reimbursing partners for partnership expenses, but the partner did not attempt to obtain reimbursement. See, e.g, Occhipinti, Rosario v. Commissioner, T.C. Memo 1969-191. Likewise, the courts have denied a deduction where a managing partner claimed he effectively implemented a practice of paying partnership expenses that was tantamount to an agreement, but an actual agreement was never entered into by the partnership. See Probandt, John M. v. Commissioner, T.C. Memo 2016-135.

John G. Hodnette is a partner with Fox Rothschild, LLP in Charlotte.

November 21, 2025/by TAX