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Unformatted text preview: Tax Outline Fall 2005, Prof. Rakowski Ranganath Sudarshan WHAT IS INCOME? Non-Cash Benefits • Competing dictates of fairness, efficiency, and practicality. Use of non-cash benefits may make enforcement difficult. • §61 – treats compensation in cash and kind alike. • Old Colony Trust – employer’s payment of income tax on behalf of employee constitutes income to employee. “The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.” Employee Fringe Benefits • §132 – the following are excluded from gross income o 1) no-additional-cost services (free seating for airline employees on flights that would not otherwise have sold out) • service offered to employee must be offered to customers in ordinary course of line of business of company; no additional cost o 2) qualified employee discounts (Macy’s gives discount to employees) • for property, discount cannot exceed profit percentage at normal offer price • for services, discount cannot exceed 20% of price to customers o 3) working condition fringes (company car use for business, free subscription to magazine relating to job) o 4) de minimis fringes – sufficiently low value to make accounting unreasonable (eating facility counts as this if it’s on premises of employer, and revenue >= costs of facility) o 5) qualified transportation fringes (employer-provided parking or mass transit o 6) qualified moving expense reimbursement o 7) qualified retirement planning services o 8) on-premises gyms and other athletic facilities o For 1) and 2), you must work in the line of business of your co in which you get the discount, plus doesn’t apply to highly compensated employees if employer discriminates in favor of them. Also, these may be provided to spouse, surviving spouse, or dependent children. • Regs 1.61-21 and 1.132-1 to -8 give valuations of certain fringes, mainly personal use of employer-provided aircraft and cars. Rule: FMV, except for safe-harbors (annual lease value for cars, $3 round trip for bona fide commuting in employer’s vehicle) • Cafeteria plans (authorized by §125) – employee may choose among a variety of non-cash non-taxable benefits or may choose to take cash (taxable) o Without this plan, employee would be taxed on cash that he could have taken, even if non-taxable option were chosen (constructive receipt) o Allows employer to provide nontaxable fringe benefits to those who want them without disfavoring employees who have no need for them. o Offerings limited to group-term life insurance (up to $50K), dependent care assistance, adoption assistance, excludable accident/health benefits, and 401(k) o Use-it-or-lose-it: if you elect $5K child-care reimbursement, if you don’t use all of the $5K by the end of the year, you can’t cash out the rest....
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This note was uploaded on 10/01/2008 for the course TAX 101 taught by Professor Rakowski during the Spring '07 term at Seton Hall.
- Spring '07