Nonmonetary recognition awards with $100 FMV were not de minimis fringe benefits.

The issue is whether nonmonetary recognition awards with a fair market value (FMV) of $100 qualify as de minimis fringes.

A fringe benefit is a form of pay provided to any person for the performance of services. Unless the law states otherwise, employers must include the value of fringe benefits in a recipient's pay. If the recipient of a taxable fringe benefit is an employee, the benefit is subject to employment taxes and the employer must report on Form W-2.

Determination of a fringe benefit's FMV depends on all the facts and circumstances. Generally, the FMV of a fringe benefit is the amount an employee would have to pay a third party in an arm's-length transaction to buy the particular fringe benefit. Neither the amount the employee considers to be the fringe benefit's value nor the cost the employer incurs to provide the benefit determines its FMV.

An employee's wages do not include the value of a de minimis fringe benefit. This benefit is any property or service provided to an employee that has so little value (taking into account how frequently an employer provides similar benefits) that accounting for it would be unreasonable or administratively impracticable. Cash, no matter how little, is never excludible as a de minimis fringe benefit (except for occasional meat money or transportation fare). Examples of de minimis fringes include:

* Occasional typing of personal letters by a company secretary;

* Occasional personal use of a company copying machine, if its use is sufficiently controlled;

* Occasional parties or picnics for employees and their guests;

* Occasional meals, meal money or local transportation fare, not based on hours worked, provided to an employee because the employee is working overtime and, for meals and meal money, provided to enable the employee to work overtime;

* Holiday gifts, other than cash, with a low FMV;

* Occasional tickets for entertainment events;

* Coffee, doughnuts or soft drinks furnished to employees; and

* Group-term life insurance payable on the death of an employee's spouse or dependent if the face amount is not more than $2,000.

Thus, if an employer distributes turkeys, hams or other merchandise of nominal value to its employees at holidays, the value of these items would not constitute salary or wages. Conversely, nonmonetary achievement awards with a FMV of $100 would not qualify as de minimis fringes and, consequently, would constitute salary and wages.

IRS LETTER RULING 200108042 (12/20/00)