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Comments on proposed fringe benefits regulations: December 5, 1991.

On December 5, 1991, Tax Executives Institute submitted the following comments to the Internal Rev Proposed regulations relating to the taxation of fringe benefits and exclusions from gross income of and other benefits. The comments were prepared under the aegis of the Institute's Federal Tax Commit F. Nitchke of Amerada Hess Corporation.

On behalf of Tax Executives Institute, I am writing to comment on the proposed regulations under section 132 of the Internal Revenue Code, relating to the taxation of fringe benefits and exclusions from gross income of certain fringe benefits. Specifically, the Institute questions the propriety of the double standard being proposed for public and private employers in respect of security-related transportation.

Under section 132(d) of the Code, the amount of the value of transportation provided to an employee that may be excluded from the employee's income as a "working condition fringe" is the amount that would be allowable as a deduction to the employee under section 162 or 167 if the employee paid for the transportation. Treas. Reg. [sections] 1.132-5(m) provides that an employee may exclude the value of security-related transportation if the existence of "a bona fide business-oriented concern" can be demonstrated. Treas. Reg. [subsections] 1.132-5(m)(2)(ii) and (iv) effectively provide, however, that no such business-oriented security program will be deemed to exist unless the employer establishes an overall (24-hour) security program with respect to the employee or (ii) the security is provided in accordance with an independent security. study. If such a concern is found to exist, the income exclusion shall also apply to the value of transportation provided to the employee's family if the transportation is furnished at the same time and in the same vehicle as the employee. In addition, Treas. Reg. [sections] 1.61-2(c)(3)(ii) provides that, if the employer elects to use certain safe harbors for valuing the benefit, the employer must so notify the employee by the later of January 31 of the calendar year for which the election is to apply or 30 days after the employer first provides the benefit to the employee.

The proposed regulations create a special exception for government employers. Under Prop. Reg. [sections] 1.132-5(m)(2)(v), a security study performed by a government employer will be deemed to be an independent security study if certain conditions are met. Prop. Reg. [sections] 1.132-5(m)(2)(iv) further provides that the value of transportation (other than commuting) provided to the family of a government employee during the period a bona fide security concern exists will not be included in the employee's gross income if the personal use is determined by the security study to be reasonable and necessary. There is no independent requirement that the service be provided at the same time and in the same vehicle as the transportation furnished to the employee. In addition, if a bona fide security concern exists, the government employer is deemed to have satisfied the notice requirement with respect to the valuation of the transportation.

According to the preamble to the proposed regulations, the special carveout for government employers is deemed necessary because "some government agencies have a recurring need to Provide protection to their employees." 1991-41 I.R.B. at 48. These agencies are said to have generally established policies relating to the provision of security; furthermore, the amount and length of the protection may be limited bY budgetary and availability problems. In addition, the preamble avers that the skirting of the independent security study requirement for government employers is appropriate because threats directed to government employees "may require an immediate response from the government employer in the form of protective services for the threatened employee and his family." Finally, the lighter recordkeeping burden is justified on the basis of the "recurrent and often urgent need" for protective services and the presence of public oversight to limit abuse. 1991-41 I.R.B. at 49.

TEI has no quarrel with the government providing tax-free transportation and security services to employees who are at some risk of harm owing to their employment. Indeed, we commend the IRS for recognizing the ham-stringing nature of certain rules in the current regulations. We submit, however, that the logic motivating the IRS to develop the proposed regulations applies with equal force to the treatment of security services provided by private employers. There is nothing unique about government employees. The urgency that impels government agencies to protect threatened employees as quickly and efficiently as possible is not confined to the executive, judicial, and legislative branches of government. As we stated in our April 15, 1986, comments on the then-temporary regulations --

the need for security may be

transitory, and more important,

that need may manifest itself

only a short time before such

security is needed. In addition,

the need for security may be so

clear that the completion of an

independent security study is

unnecessary to establish the

existence of a bona fide business-oriented

security concern.

Just like government agencies, companies may have a recurring need to provide protection for their employees, especially those operating in unstable foreign Countries. Just like government agencies, these companies have established procedures and restrictions on such security. Just like government agencies, companies may face budgetary constraints in providing such services. The "public oversight" of these expenditures is provided by the independent auditors required for publicly held companies and the public disclosures required by the Securities and Exchange Commission and the marketplace. Indeed, we suggest that recent press reports about government-provided transportation under the guise of security and job demands cast some little doubt on the assertion in the preamble that "public oversight limits abuses."

There is simply no justification for treating private employees differently from government employees.(1) The protection of the employee should be the paramount concern; the need for a response by the employer is no less critical for a private employer seeking to protect its employees from a terrorist's threat abroad as it is for a government employer seeking to protect a U.S. judge from protestors or organized crime figures. Thus, the IRS should eliminate the requirement for an independent study and bring the requirements for family protection for all employers, public and private, into line with the reality. After all, what is good for the goose is good for the gander.

Moreover, the Institute finds it ironic -- and somewhat myopic in view of Compliance 2000 -- that the IRS believes that lighter recordkeeping burdens are dictated for government employers because of the complexity of the current regulatory requirements. A government employer is no more likely to be overwhelmed by the mindnumbing complexity of the law's requirements than a private employer. TEI has long argued that the section 132 regulations unjustly penalize the employee for the employer's (often inadvertent) failure to comply with the notice requirements. We suggest that the IRS extend its new-found concern for irrational recordkeeping schemes to all employers. The deemed notice provision set forth in the proposed regulations should apply to both public and private entities.

Tax Executives Institute appreciates this opportunity to present our views on the proposed regulations under section 132, relating to the taxation of employee fringe benefits. If you have any questions, please do not hesitate to call David F. Nitschke, chair of TEI's Federal Tax Committee, at (908) 750-6782 or Mary L. Fahey of the Institute's professional staff at (202) 638-5601.

U.S. Postal Service


(Required by 39 U.S.C. 3865)

1A. Title of Publication: The Tax Executive. 1B. Publication No: 615940. 2. Date of Filing: September 25, 1991. 3. Frequency of Issue: Bi-monthly. 3A. No. of Issues Published Annually: Six. 3B. Annual Subscription Price: $90.00. 4. Complete Mailing Address of Known Office of Publication: Tax Executives Institute, Inc., 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505. 5. Complete Mailing Address of the Headquarters of General Business Offices of the Publisher: Tax Executives Institute, Inc., 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505. 6. Names and Complete Addresses of Publisher, Editor, and Managing Editor: Publisher -- Tax Executives Institute, Inc., 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505; Editor -- Timothy J. McCormally, Tax Executives Institute, Inc., 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505; Managing Editor -- Timothy J. McCormally, Tax Executives Institute, Inc., 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505. 7. Owner: Tax Executives Institute, Inc. (No shareholders. A not-for-profit organization of New York State). Address: 1001 Pennsylvania Avenue, N.W., Suite 320, Washington, D.C. 20004-2505. 8. Known Bondholders, Mortgages, and Other Security Holders Owning or Holding 1 Percent of More of Total Amount of Bonds, Mortgages or Other Securities: None. 9. For Completion by Nonprofit Organizations Authorized to Mail at Special Rates: The purpose, function, and non-profit status of this organization and the exempt status for Federal income tax purposes -- has Not Changed During Preceding 12 Months. 10. Extent and Nature of Circulation (first figure is the average number of copies of each issue during preceding 12 months and second figure is the actual number of copies of single issue published nearest to filing date). 10A. Total No. Copies Printed (Net Press Run): 5500; 5550. 10B. Paid and/or Requested Circulation: 1. Sales through dealers and carries, street vendors, and counter sales: 50; 50 2. Mail Subscriptions (Paid and/or requested): 5239; 5299. 10C. Total Paid and/or Requested Circulation (Sum of 10B1 and 10B2): 5289; 5349. 10D. Free Distribution by Mail, Carrier, or Other Means; Samples, Complimentary, and Other Free Copies: 131; 111. 10E. Total Distribution (Sum of 10C and 10D): 5420; 5460. 10F. Copies Not Distributed: 1. Offices use, left over, unaccounted, spoiled after printing: 80; 90. Returns from news agents: None. 10G. Total (Sum of E, F1 and 2 -- should equal net press run shown in 10A): 5500; 5550. 11. I certify that the statements made by me are correct and complete. TAX EXECUTIVES INSTITUTE, INC.,/s/Timothy J. McCormally, Editor. (1) The narrowness of the approach taken in the proposed regulations is particularly disappointing in light of the regulations' pragmatic treatment of the provision of directors and officers liability insurance for volunteers of tax-exempt organizations.
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Title Annotation:Tax Executives Institute
Publication:Tax Executive
Date:Jan 1, 1992
Previous Article:Comments on proposed interest capitalization regulations: December 12, 1991.
Next Article:Proposed National Wage Reporting System.

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