Fringe Benefits

On April 16, 2024, the IRS issued fact sheet FS-2024-13 providing answers to frequently asked questions  about the tax treatment of work-life referral services provided to employees under an employer’s work-life referral program. The FAQs clarify that, under certain circumstances, the value received from work-life referral services provided to employees through a work-life referral program…

In February, a U.S. Tax Court opinion in Anikeev v. Commisioner  addressed challenging issues regarding the IRS’s existing policy with respect to the taxation of credit card rewards and other rebates.  The case involves Mr. and Mrs. Anikeev, each of whom held a Blue Cash American Express Card (“Blue Card”) during 2013 and 2014, on which they accumulated a substantial amount of reward dollars through the use of their cards.  At issue in Anikeev is whether the reward dollars were taxable income to the Anikeevs.  Basing its decision on longstanding IRS policy, the court determined that the overwhelming majority of the rewards were not taxable to the Anikeevs, although the decision does address how the Service could potentially reform its policy regarding credit card rewards to prevent the same result in the future.
Continue Reading Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy on Credit Card Rewards

On January 4, 2021, the Internal Revenue Service issued Notice 2021-7 pertaining to the valuation of the personal use of employer-provided vehicles.  The Notice permits employers who rely on the special valuation rule of Treasury Regulation § 1.61-21(d), known as the Automobile Lease Valuation (ALV) method, to retroactively apply the vehicle cents-per-mile method of Treasury Regulation § 1.61-21(e) for purposes of valuing an employee’s personal use of a company vehicle in 2020.  Due to decreased business use of employer-provided vehicles during the COVID-19 pandemic, the IRS agreed with employers that the application of the ALV method may have resulted in higher income imputation than usual for many employees and that the use of the vehicle cents-per-mile method may provide a “more accurate reflection of the employee’s income . . [,]” particularly in 2020.  The ability to switch from the ALV method to the vehicle cents-per-mile method for 2020 applies only to a vehicle with a fair market value not exceeding $50,400 in 2020 and with respect to which the employer would reasonably have expected its regular use in the employer’s trade or business, were it not for the pandemic.

In addition, Notice 2021-7 provides employers, who switch from the ALV method to the vehicle cents-per-mile method for purposes of calculating personal use of the vehicle in 2020, with the option of continuing to apply the vehicle cents-per-mile method in 2021.  If the employer decides to continue using the vehicle cents-per-mile method in 2021, that method must be used by the employer and employee for all subsequent years, except to the extent the commuting valuation rule applies.  This decision will require employers to carefully evaluate whether the vehicle will continue to meet all of the requirements of Treasury Regulation § 1.61-21(e), other than the consistency requirement, and whether the value of the employee’s personal use of the vehicle will actually be calculated more favorably under the vehicle cents-per-mile method as compared to the ALV method, once the pandemic recedes in 2021 and vehicle use increases.
Continue Reading Notice 2021-7 Provides Employers Relief and Potential Opportunities on Valuation of Employer-Provided Vehicles in Light of COVID-19 Pandemic

Yesterday, December 9, the IRS released final regulations implementing the Section 274(a)(4) and 274(l) deduction disallowances, adopted as part of the 2017 Tax Cuts and Jobs Act.  Section 274(a)(4) disallows employer deductions for the cost of providing qualified transportation fringe (“QTF”) benefits provided to employees.  Section 274(l) provides a broader deduction disallowance for expenses paid for, or to reimburse for, employees’ trips between their residences and their places of employment.  Both deduction disallowances took effect for tax years beginning after December 31, 2017.

The final regulations largely follow the approach taken in the proposed regulations issued in June, which built on earlier guidance provided in Notice 2018-99.  Treasury Regulation § 1.274-13 addresses the deduction disallowance under section 274(a)(4) for the cost of QTFs provided under section 132(f), such as qualified parking, transit passes, and other tax-free commuting benefits.  Treasury Regulation § 1.274-14 addresses the deduction disallowance under section 274(a).
Continue Reading IRS Issues Final Regulations on Commuting Expenses Deduction Disallowances

Soon, many District of Columbia employers will be subject to a new “parking cash-out” law designed to promote environmentally friendly commuting options, i.e., other than individual commutes by automobile.  At a high-level, parking cash-out laws generally require employers that provide free or subsidized parking to offer to pay employees cash in lieu of the subsidized parking if the employee uses another commuting method. Failure to satisfy the act’s requirements may result in the imposition of civil fines and penalties.

The Transportation Benefits Equity Amendment Act of 2020 (the “Act”) became effective June 24, 2020, but originally contained a funding provision that delayed its operational effect.  Similar legislation has been in place in some areas for over 20 years.  The D.C. Council has since repealed the funding provision, and we expect the Act’s requirements to take effect in mid-November 2020.  The timing of the Act’s adoption has raised some eyebrows, as many employers and employees are seeking ways for employees to commute that avoids crowded public transportation in light of the ongoing COVID-19 pandemic.

As this post discusses, the Act’s requirements pose difficult compliance questions for employers.  Guidance would be welcome in helping employers implement the Act, and will hopefully be forthcoming soon.  Employers are encouraged to consult with tax and benefits counsel as they evaluate their fringe benefit programs for compliance with the Act.
Continue Reading New D.C. Transportation Benefits Law Creates Potentially Bumpy Road for Employer Compliance

On October 9, the IRS published final Treasury Regulations addressing the deduction disallowance of expenses associated with providing entertainment, business meals, and other food and beverages in the Federal Register.  The final regulations, which track the proposed regulations published on February 26, 2020, preserve, with certain limitations, taxpayers’ ability to deduct 50 percent of the cost of business meals, even though the Tax Cuts and Jobs Act (“TCJA”) repealed the directly related and business discussion exceptions to the general prohibition on deducting entertainment expenditures.  Treasury Regulation § 1.274-11 addresses the deduction disallowance under Section 274(a)(1) for entertainment costs.  Treasury Regulation § 1.274-12 addresses the limitations on food or beverage expenses under Sections 274(k) and (n), including the application of exceptions in Section 274(e).

The TCJA’s elimination of a taxpayer’s ability to deduct 50 percent of meal and entertainment expenses meeting the directly related and business discussion exceptions took effect for tax years beginning after December 31, 2017.  In 2018, IRS Notice 2018-76 provided transitional guidance on the deductibility of expenses for certain business meals and other food and beverage expenses under Section 274(a)(1).  The proposed regulations largely adopted the guidance provided in Notice 2018-76, while also providing some significant updates.  The final regulations made only a few substantive changes to the proposed regulations.Continue Reading Final Regulations Address TCJA Disallowance for Meal and Entertainment Expenses

On June 23, Proposed Treasury Regulations §§ 1.274-13 and 1.274-14 were published in the Federal Register addressing the disallowance of employer deductions for the cost of providing commuting and parking benefits to employees.  The proposed regulations are a mixed bag with some clarifications being helpful and others less so.  Proposed Treasury Regulation § 1.274-13 addresses the deduction disallowance under section 274(a)(4) for the cost of qualified transportation fringe benefits (QTFs) provided under section 132(f), i.e., qualified parking, transit passes, and other tax-free commuting benefits.  Proposed Treasury Regulation § 1.274-14 addresses the deduction disallowance for employee transportation costs under section 274(l).  Both deduction disallowance provisions were adopted as part of the Tax Cuts and Jobs Act (“TCJA”), and took effect for tax years beginning after December 31, 2017.
Continue Reading Proposed Regulations Regarding TCJA Disallowance for Employee Commuting and Parking Costs a Mixed Bag

Prompted by the COVID-19 global health emergency (the “COVID-19 Emergency”), Treasury and the IRS recently issued Rev. Proc. 2020-27 to provide relief for U.S. citizens and residents planning to take advantage of the foreign earned income exclusion under section 911 of the Internal Revenue Code whose expatriate assignments were interrupted due to the pandemic.  The Revenue Procedure waives the time requirements of section 911(d)(1) for those individuals who reasonably expected to meet such requirements during 2019 and 2020, but for the COVID-19 Emergency interrupting normal business activities and forcing their return to the United States within certain time periods identified in the Revenue Procedure.
Continue Reading IRS Provides COVID-19 Emergency Relief for Individuals Planning to Claim the Foreign Earned Income Exclusion

UPDATE: We have provided an updated analysis of the issues surrounding the availability of Section 139.  Our original post is below.

On March 13, 2020, the President declared the COVID-19 pandemic to be an emergency under Section 501(b) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (the “Stafford Act”).  The decision to declare an emergency is addressed in a letter from the President to Administration officials in which he explained that his decision to issue an emergency declaration was “based on the fact that our entire country is now facing a significant public health emergency.”
Continue Reading COVID-19 Emergency Declaration: Code Section 139 Uncertain; Leave-Sharing Policies Permitted

For decades, employers and employees have been effectively precluded from using two of the handiest special valuation rules—the fleet-average and vehicle cents-per-mile valuation rules—to value employees’ personal use of employer-provided vehicles.  The 1989 fringe benefit regulations imposed modest maximum vehicle values ($16,500 and $12,800, respectively, as adjusted for inflation) to limit the use of the rules, which have not kept pace with rising vehicle costs.

When the 2017 Tax Cuts and Jobs Act (“TCJA”) increased the dollar limitations on the depreciation deductions for luxury automobiles under section 280F(a), the permitted maximum value of a vehicle, when using either special valuation rule, increased to $50,000, which is adjusted for inflation beginning with calendar year 2019.  On February 5, 2020, Treasury published final regulations amending Treasury Regulation § 1.61-21 to align the increased limitations on the maximum vehicle fair market values with the TCJA changes.  Consistent with earlier guidance in proposed regulations, Notice 2019-08, and Notice 2019-34, the final regulations also provide transition rules for employers who desire to retroactively use either special value rule for 2018 or 2019, if the vehicle would have met the increased maximum value requirement in the year the vehicle was first made available to any employee of the employer.
Continue Reading New Treasury Regulations Ease Payroll Administration Related to Employer-Provided Vehicles