In a brand new case, Mihalik, C Memo 2022-36.4/13/22, a retired pilot took benefit of a particular program of his former employer that supplied free airline tickets on a stand-by foundation. Though the worth of such advantages could qualify for a tax-free statutory fringe profit, the Tax Court docket refused to offer clearance on this occasion.
Typically, the price of de minimis fringe advantages is exempt from federal revenue tax. This happens when it’s impractical or unreasonable for an employer to maintain monitor of comparatively small advantages. It could vary from use of the corporate fax machine or copier for private causes to free espresso, gentle drinks or donuts within the workplace. Additionally, the worth of no-additional price providers could also be exempt from tax. A “no-additional price service” is (1) supplied by an employer to an worker; (2) at no substantial further price to the employer; (3) to be used by the worker; and (4) is obtainable on the market to clients or shoppers within the regular course of enterprise.
For instance, extra capability providers, equivalent to stand-by flights supplied by business airways to their workers, are sometimes handled as no-additional price providers and aren’t taxable to the recipients. To qualify for this exemption, nonetheless, the profit have to be supplied to an lively or retired worker, their partner or their dependent youngster.
On this case, the taxpayer, a resident of Florida, is a retired United Airways pilot. The airline supplies retired pilots (and their relations and associates) with free stand-by tickets beneath its Retiree Cross Journey Program (RPTP). The taxpayer, his partner and their grownup daughter traveled extensively beneath the RPTP in 2016. Different kinfolk additionally benefitted from this system.
United Airways stored detailed information of all these journey actions. It reported taxable revenue of $5,478 for 2016, primarily based primarily on the journey of the taxpayer’s kinfolk. The IRS issued a discover of deficiency for $2,862, together with an quantity attributable to the journey of the taxpayer’s grownup daughter. Because of this, the taxpayer took the IRS to Tax Court docket, regardless of the comparatively small quantity of tax at stake.
At trial, the taxpayer claimed that the worth of the advantages represent a de minimis fringe profit. Alternatively, it argued that this was a no-additional price profit. Nevertheless, the Tax Court docket disagreed. It disputed the tax exemptions for each kinds of advantages.
- The worth of the tickets can’t be excluded from tax a de minimis fringe as a result of the tickets had a worth excessive sufficient that accounting for his or her provision was not unreasonable or administratively impracticable.
- The worth of the kinfolk’ tickets can’t be excluded from tax as a “no-additional price service” as a result of the grownup kinfolk weren’t the taxpayer’s dependent kids in 2016.
This case demonstrates that taxpayers should stick with the strict letter of the regulation when tax-free fringe advantages are being claimed. Examine your tax standing on the gate.
