Brees Co Requires Its Employees to Adequately Account for All Reimbursed

Brees Co. requires its employees to adequately account for all reimbursed business expenses. Tracy, an employee of Brees Co. has AGI of $50,000 and submitted for reimbursement the following valid business expenses:
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$$\begin{array} { l r } \text { Transportation costs } & \$ 1,000 \\\text { Meals } & 700 \\\text { Hotel costs } & \$ 1,300\end{array}$$
What are the tax consequences if Brees reimburses Tracy $2,400?
I.Tracy must report $2,400 of income.
II.Tracy can deduct $2,400 of the expenses for AGI and $-0- as miscellaneous itemized deductions.
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A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements are correct.
D) Neither statement is correct.

Correct Answer:

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