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De minimis fringe benefits.

Generally speaking, the fair market value of any fringe benefit given to an employee is taxable as income. However, Internal Revenue Code section 132 lists six types of fringe benefits that can be excluded from an employee's gross income, including de minimis fringe benefits: those with values so small that, according to the section, accounting for them would be impractical or unreasonable. The following are examples of tax-free de minimis fringe benefits that are available to employees on a discriminatory basis:

* Occasional personal letters typed by a company secretary.

* Occasional personal use of a company photocopy machine (at least 85% of the machine's use must be for business purposes).

* Occasional cocktail parties or picnics for employees and their guests.

* Occasional supper money or taxi fare for employees due to overtime work.

* Holiday gifts with a low fair market value.

* Occasional theater or sporting events tickets.

* Free coffee and doughnuts.

If an employer offers a fringe benefit not specifically mentioned in the regulations, there are no guidelines to determine if it is de minimis. Employers must request a letter ruling from the IRS asking how a proposed transaction should be treated for tax purposes.

Recently, a company proposed to sponsor a Volunteer Income Tax Assistance (VITA) site at its company headquarters. VITA sites are established by the Internal Revenue Service and sponsored by business and civic organizations to assist the public in preparing tax returns. The VITA site also is available for all employees during regular business hours. Employees who work over 100 miles from company headquarters receive a nontransferable coupon entitling them to a single session at an income tax return preparation clinic of their choice.

According to letter ruling 9442003, the value of the return preparation services provided at the VITA site can be excluded from the employee's gross income as a de minimis fringe benefit. However, the amount the company pays to the income tax preparer cannot, because tax preparers provide sophisticated services and their fees are not small enough to make accounting for them unreasonable or administratively impractical.

Observation: If an employer is not a registered electronic filer, the cost of having returns electronically formatted and transmitted is considered a de minimis fringe benefit.
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Article Details
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Author:Lynch, Michael
Publication:Journal of Accountancy
Article Type:Brief Article
Date:Feb 1, 1995
Previous Article:Herbert Lerner receives Arthur J. Dixon Award.
Next Article:Conduit financing arrangements.

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