Tax Slides - Federal Income Taxation Fall 2007 1 I...

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Federal Income Taxation Fall 2007 1
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Qualified Employee Discounts Employer’s policy for its employees:   We will provide you with a qualified service for use by yourself, your spouse, your children, or your parents,  for a price of $80. (The price we charge customers is $100.) IRS’s policy:   A discount (of up to 20% of the price charged to customers) on qualified services provided  (1)  by the employer to an employee  (2)  for  use by the employee is not included in the employee’s income. Example 1: Qualified service for use by yourself  ER                                                                 EE  $80 Example 2: Qualified service for use by your spouse  ER                                                                 EE  $80 See § 132(h)(2). 2
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Example 3 (Airline industry): Qualified service for use by your father  ER                                                               EE  $80 See § 132(h)(3). Example 4 (Other industry): Qualified service for use by your father  ER EE  $80 II. § 119 – Meals or Lodging Furnished for the Convenience of the Employer § 119 (enacted in 1954) excludes from income the value of: 1. meals or lodging 2. furnished to an employee, his spouse, or his dependents  3. by or on behalf of his employer 3
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4. for the “convenience of the employer”  5. on the business premises of the employer, and  6. in the case of lodging, only if the employee is required to accept such lodging as a condition of his employment. III. Income Realized in the Form of Property or Services A. Basic rules Treas. Reg. § 1.61-1(a). Gross income includes income realized in any form, whether in money, property, or services. Treas. Reg. § 1.61-2(d). Compensation paid other than in cash. (1) In general.— If services are paid for in property, the fair market value of the property taken in payment must be included in income as  compensation.  If services are paid for in exchange for other services, the fair market value of such other services taken in payment must be  included in income as compensation. B. Section 83 1. Example Suppose ER (a corporation) gives EE a share of restricted ER stock. The terms of the restricted stock are that: EE may not transfer the stock for five years, and if EE terminates her employment with ER during that five-year period, EE must return the stock to ER.
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