§132 — Certain fringe benefits
36 citing cases
Statute Text — 26 U.S.C. §132
Gross income shall not include any fringe benefit which qualifies as a—
no-additional-cost service,
qualified employee discount,
working condition fringe,
de minimis fringe,
qualified transportation fringe,
qualified moving expense reimbursement,
qualified retirement planning services, or
qualified military base realignment and closure fringe.
For purposes of this section, the term “no-additional-cost service” means any service provided by an employer to an employee for use by such employee if—
such service is offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services, and
the employer incurs no substantial additional cost (including forgone revenue) in providing such service to the employee (determined without regard to any amount paid by the employee for such service).
For purposes of this section—
The term “qualified employee discount” means any employee discount with respect to qualified property or services to the extent such discount does not exceed—
in the case of property, the gross profit percentage of the price at which the property is being offered by the employer to customers, or
in the case of services, 20 percent of the price at which the services are being offered by the employer to customers.
The term “gross profit percentage” means the percent which—
the excess of the aggregate sales price of property sold by the employer to customers over the aggregate cost of such property to the employer, is of
the aggregate sale price of such property.
Gross profit percentage shall be determined on the basis of—
all property offered to customers in the ordinary course of the line of business of the employer in which the employee is performing services (or a reasonable classification of property selected by the employer), and
the employer’s experience during a representative period.
The term “employee discount” means the amount by which—
the price at which the property or services are provided by the employer to an employee for use by such employee, is less than
the price at which such property or services are being offered by the employer to customers.
The term “qualified property or services” means any property (other than real property and other than personal property of a kind held for investment) or services which are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee is performing services.
For purposes of this section, the term “working condition fringe” means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.
For purposes of this section—
The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable.
The operation by an employer of any eating facility for employees shall be treated as a de minimis fringe if—
such facility is located on or near the business premises of the employer, and
revenue derived from such facility normally equals or exceeds the direct operating costs of such facility.
The preceding sentence shall apply with respect to any highly compensated employee only if access to the facility is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees. For purposes of subparagraph (B), an employee entitled under section 119 to exclude the value of a meal provided at such facility shall be treated as having paid an amount for such meal equal to the direct operating costs of the facility attributable to such meal.
For purposes of this section, the term “qualified transportation fringe” means any of the following provided by an employer to an employee:
Transportation in a commuter highway vehicle if such transportation is in connection with travel between the employee’s residence and place of employment.
Any transit pass.
Qualified parking.
The amount of the fringe benefits which are provided by an employer to any employee and which may be excluded from gross income under subsection (a)(5) shall not exceed—
$175 per month in the case of the aggregate of the benefits described in subparagraphs (A) and (B) of paragraph (1), and
$175 per month in the case of qualified parking.
For purposes of this subsection, the term “qualified transportation fringe” includes a cash reimbursement by an employer to an employee for a benefit described in paragraph (1). The preceding sentence shall apply to a cash reimbursement for any transit pass only if a voucher or similar item which may be exchanged only for a transit pass is not readily available for direct distribution by the employer to the employee.
No amount shall be included in the gross income of an employee solely because the employee may choose between any qualified transportation fringe and compensation which would otherwise be includible in gross income of such employee.
For purposes of this subsection—
The term “transit pass” means any pass, token, farecard, voucher, or similar item entitling a person to transportation (or transportation at a reduced price) if such transportation is—
on mass transit facilities (whether or not publicly owned), or
provided by any person in the business of transporting persons for compensation or hire if such transportation is provided in a vehicle meeting the requirements of subparagraph (B)(i).
The term “commuter highway vehicle” means any highway vehicle—
the seating capacity of which is at least 6 adults (not including the driver), and
at least 80 percent of the mileage use of which can reasonably be expected to be—
for purposes of transporting employees in connection with travel between their residences and their place of employment, and
on trips during which the number of employees transported for such purposes is at least ½ of the adult seating capacity of such vehicle (not including the driver).
The term “qualified parking” means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by transportation described in subparagraph (A), in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes.
Transportation referred to in paragraph (1)(A) shall be considered to be provided by an employer if such transportation is furnished in a commuter highway vehicle operated by or for the employer.
For purposes of this subsection, the term “employee” does not include an individual who is an employee within the meaning of section 401(c)(1).
In the case of any taxable year beginning in a calendar year after 1999, the dollar amounts contained in subparagraphs (A) and (B) of paragraph (2) shall be increased by an amount equal to—
such dollar amount, multiplied by
the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1997” for “calendar year 2016” in subparagraph (A)(ii) thereof.
If any increase determined under subparagraph (A) is not a multiple of $5, such increase shall be rounded to the next lowest multiple of $5.
For purposes of this section, the terms “working condition fringe” and “de minimis fringe” shall not include any qualified transportation fringe (determined without regard to paragraph (2)).
For purposes of this section—
The term “qualified moving expense reimbursement” means any amount received (directly or indirectly) by an individual from an employer as a payment for (or a reimbursement of) expenses which would be deductible as moving expenses under section 217 if directly paid or incurred by the individual. Such term shall not include any payment for (or reimbursement of) an expense actually deducted by the individual in a prior taxable year.
Except in the case of a member of the Armed Forces of the United States on active duty who moves pursuant to a military order and incident to a permanent change of station, or an employee or new appointee of the intelligence community (as defined in section 3 of the National Security Act of 1947 (50 U.S.C. 3003)) (other than a member of the Armed Forces of the United States) who moves pursuant to a change in assignment that requires relocation, subsection (a)(6) shall not apply to any taxable year beginning after December 31, 2017.
For purposes of paragraphs (1) and (2) of subsection (a)—
With respect to a line of business of an employer, the term “employee” includes—
any individual who was formerly employed by such employer in such line of business and who separated from service with such employer in such line of business by reason of retirement or disability, and
any widow or widower of any individual who died while employed by such employer in such line of business or while an employee within the meaning of subparagraph (A).
Any use by the spouse or a dependent child of the employee shall be treated as use by the employee.
For purposes of subparagraph (A), the term “dependent child” means any child (as defined in section 152(f)(1)) of the employee—
who is a dependent of the employee, or
both of whose parents are deceased and who has not attained age 25.
For purposes of the preceding sentence, any child to whom section 152(e) applies shall be treated as the dependent of both parents.
Any use of air transportation by a parent of an employee (determined without regard to paragraph (1)(B)) shall be treated as use by the employee.
For purposes of paragraph (1) of subsection (a), any service provided by an employer to an employee of another employer shall be treated as provided by the employer of such employee if—
such service is provided pursuant to a written agreement between such employers, and
neither of such employers incurs any substantial additional costs (including foregone revenue) in providing such service or pursuant to such agreement.
Paragraphs (1) and (2) of subsection (a) shall apply with respect to any fringe benefit described therein provided with respect to any highly compensated employee only if such fringe benefit is available on substantially the same terms to each member of a group of employees which is defined under a reasonable classification set up by the employer which does not discriminate in favor of highly compensated employees.
For purposes of paragraph (2) of subsection (a), in the case of a leased section of a department store—
such section shall be treated as part of the line of business of the person operating the department store, and
employees in the leased section shall be treated as employees of the person operating the department store.
For purposes of subparagraph (A), a leased section of a department store is any part of a department store where over-the-counter sales of property are made under a lease or similar arrangement where it appears to the general public that individuals making such sales are employed by the person operating the department store.
For purposes of subsection (a)(3), qualified automobile demonstration use shall be treated as a working condition fringe.
For purposes of subparagraph (A), the term “qualified automobile demonstration use” means any use of an automobile by a full-time automobile salesman in the sales area in which the automobile dealer’s sales office is located if—
such use is provided primarily to facilitate the salesman’s performance of services for the employer, and
there are substantial restrictions on the personal use of such automobile by such salesman.
Gross income shall not include the value of any on-premises athletic facility provided by an employer to his employees.
For purposes of this paragraph, the term “on-premises athletic facility” means any gym or other athletic facility—
which is located on the premises of the employer,
which is operated by the employer, and
substantially all the use of which is by employees of the employer, their spouses, and their dependent children (within the meaning of subsection (h)).
If—
a qualified affiliate is a member of an affiliated group another member of which operates an airline, and
employees of the qualified affiliate who are directly engaged in providing airline-related services are entitled to no-additional-cost service with respect to air transportation provided by such other member,
then, for purposes of applying paragraph (1) of subsection (a) to such no-additional-cost service provided to such employees, such qualified affiliate shall be treated as engaged in the same line of business as such other member.
For purposes of this paragraph, the term “qualified affiliate” means any corporation which is predominantly engaged in airline-related services.
For purposes of this paragraph, the term “airline-related services” means any of the following services provided in connection with air transportation:
Catering.
Baggage handling.
Ticketing and reservations.
Flight planning and weather analysis.
Restaurants and gift shops located at an airport.
Such other similar services provided to the airline as the Secretary may prescribe.
For purposes of this paragraph, the term “affiliated group” has the meaning given such term by section 1504(a).
For purposes of this section, the term “highly compensated employee” has the meaning given such term by section 414(q).
For purposes of subsection (b), the transportation of cargo by air and the transportation of passengers by air shall be treated as the same service.
Amounts paid or expenses incurred by the employer for education or training provided to the employee which are not excludable from gross income under section 127 shall be excluded from gross income under this section if (and only if) such amounts or expenses are a working condition fringe.
For purposes of this section (other than subsection (c)(2)), the term “customers” shall only include customers who are not employees.
This section (other than subsections (e) and (g)) shall not apply to any fringe benefits of a type the tax treatment of which is expressly provided for in any other section of this chapter.
For purposes of this section, the term “qualified retirement planning services” means any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer plan.
Subsection (a)(7) shall apply in the case of highly compensated employees only if such services are available on substantially the same terms to each member of the group of employees normally provided education and information regarding the employer’s qualified employer plan.
For purposes of this subsection, the term “qualified employer plan” means a plan, contract, pension, or account described in section 219(g)(5).
For purposes of this section—
The term “qualified military base realignment and closure fringe” means 1 or more payments under the authority of section 1013 of the Demonstration Cities and Metropolitan Development Act of 1966 (42 U.S.C. 3374) (as in effect on the date of the enactment of the American Recovery and Reinvestment Tax Act of 2009).
With respect to any property, such term shall not include any payment referred to in paragraph (1) to the extent that the sum of all of such payments related to such property exceeds the maximum amount described in subsection (c) of such section (as in effect on such date).
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this section.
Treasury Regulations
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Treas. Reg. §1.132-0Outline of regulations under section 132
The following is an outline of regulations in this section relating to exclusions from gross income for certain fringe benefits:
§ 1.132-1 (a) In general.
§ 1.132-1 (b) Definition of employee.
(1) No-additional-cost services and qualified employee discounts.
(2) Working condition fringes.
(3) On-premises athletic facilities.
(4) De minimis fringes.
(5) Dependent child.
§ 1.132-1 (c) Special rules for employers—Effect of section 414.
§ 1.132-1 (d) Customers not to include employees.
§ 1.132-1 (e) Treatment of on-premises athletic facilities.
(1) In general.
(2) Premises of the employer.
(3) Application of rules to membership in an athletic facility.
(4) Operation by the employer.
(5) Nonapplicability of nondiscrimination rules.
§ 1.132-1 (f) Nonapplicability of section 132 in certain cases.
(1) Tax treatment provided for in another section.
(2) Limited statutory exclusions.
§ 1.132-1 (g) Effective date.
§ 1.132-2 (a) In general.
(1) Definition.
(2) Excess capacity services.
(3) Cash rebates.
(4) Applicability of nondiscrimination rules.
(5) No substantial additional cost.
(6) Payments for telephone service.
§ 1.132-2 (b) Reciprocal agreements.
§ 1.132-2 (c) Example.
§ 1.132-3 (a) In general.
(1) Definition.
(2) Qualified property or services.
(3) No reciprocal agreement exception.
(4) Property of services provided without charge, at a reduced price, or by rebates.
(5) Property or services provided directly by the employer or indirectly through a third party.
(6) Applicability of nondiscrimination rules.
§ 1.132-3 (b) Employee discount.
(1) Definition.
(2) Price to customers.
(3) Damaged, distressed, or returned goods.
§ 1.132-3 (c) Gross profit percentage.
(1) In general.
(2) Line of business.
(3) Generally accepted accounting principles.
§ 1.132-3 (d) Treatment of leased sections of department stores.
(1) In general.
(2) Employees of the leased section.
§ 1.132-3 (e) Excess discounts.
§ 1.132-4 (a) In general.
(1) Applicability.
(2) Definition.
(3) Aggregation of two-digit classifications.
§ 1.132-4 (b) Grandfather rule for certain retail stores.
(1) In general.
(2) Taxable year of affiliated group.
(3) Definition of “sales”.
(4) Retired and disabled employees.
(5) Increase of employee discount.
§ 1.132-4 (c) Grandfather rule for telephone service provided to pre-divestiture retirees.
§ 1.132-4 (d) Special rule for certain affiliates of commercial airlines.
(1) General rule.
(2) “Airline affiliated group” defined.
(3) “Qualified affiliate” defined.
§ 1.132-4 (e) Grandfather rule for affiliated groups operating airlines.
§ 1.132-4 (f) Special rule for qualified air transportation organizations.
§ 1.132-4 (g) Relaxation of line of business requirement.
§ 1.132-4 (h) Line of business requirement does not expand benefits eligible for exclusion.
§ 1.132-5 (a) In general.
(1) Definition.
(2) Trade or business of the employee.
§ 1.132-5 (b) Vehicle allocation rules.
(1) In general.
(2) Use of different employer-provided vehicles.
(3) Provision of a vehicle and chauffeur services.
§ 1.132-5 (c) Applicability of substantiation requirements of sections 162 and 274(d).
(1) In general.
(2) Section 274(d) requirements.
§ 1.132-5 (d) Safe harbor substantiation rules.
(1) In general.
(2) Period for use of safe harbor rules.
§ 1.132-5 (e) Safe harbor substantiation rule for vehicles not used for personal purposes.
§ 1.132-5 (f) Safe harbor substantiation rule for vehicles not available to employees for personal use other than commuting.
§ 1.132-5 (g) Safe harbor substantiation rule for vehicles used in connection with the business of farming that are available to employees for personal use.
(1) In general.
(2) Vehicles available to more than one individual.
(3) Examples.
§ 1.132-5 (h) Qualified nonpersonal use vehicles.
(1) In general.
(2) Shared usage of qualified nonpersonal use vehicles.
§ 1.132-5 (i) [Reserved]
§ 1.132-5 (j) Application of section 280F.
§ 1.132-5 (k) Aircraft allocation rule.
§ 1.132-5 (l) [Reserved]
§ 1.132-5 (m) Employer-provided transportation for security concerns.
(1) In general.
(2) Demonstration of bona fide business-oriented security concerns.
(3) Application of security rules to spouses and dependents.
(4) Working condition safe harbor for travel on employer-provided aircraft.
(5) Bodyguard/chauffeur provided for a bona fide business-oriented security concern.
(6) Special valuation rule for government employees.
(7) Government employer and employee defined.
(8) Examples.
§ 1.132-5 (n) Product testing.
(1) In general.
(2) Employer-imposed limits.
(3) Discriminating classifications.
(4) Factors that negate the existence of a product testing program.
(5) Failure to meet the requirements of this paragraph (n).
(6) Example.
§ 1.132-5 (o) Qualified automobile demonstration use.
(1) In general.
(2) Full-time automobile salesman.
(3) Demonstration automobile.
(4) Substantial restrictions on personal use.
(5) Sales area.
(6) Applicability of substantiation requirements of sections 162 and 274(d).
(7) Special valuation rules.
§ 1.132-5 (p) Parking.
(1) In general.
(2) Reimbursement of parking expenses.
(3) Parking on residential property.
(4) Dates of applicability.
§ 1.132-5 (q) Nonapplicability of nondiscrimination rules.
§ 1.132-5 (r) Volunteers.
(1) In general.
(2) Limit on application of this paragraph.
(3) Definitions.
(4) Example.
§ 1.132-6 (a) In general.
§ 1.132-6 (b) Frequency.
(1) Employee-measured frequency.
(2) Employer-measured frequency.
§ 1.132-6 (c) Administrability.
§ 1.132-6 (d) Special rules.
(1) Transit passes.
(2) Occasional meal money or local transportation fare.
(3) Use of special rules or examples to establish a general rule.
(4) Benefits exceeding value and frequency limits.
§ 1.132-6 (e) Examples.
(1) Benefits excludable from income.
(2) Benefits not excludable as de minimis fringes.
§ 1.132-6 (f) Nonapplicability of nondiscrimination rules.
§ 1.132-7 (a) In general.
(1) Conditions for exclusion.
(2) Employer-operated eating facility for employees.
(3) Operation by the employer.
(4) Example.
§ 1.132-7 (b) Direct operating costs.
(1) In general.
(2) Multiple dining rooms or cafeterias.
(3) Payment to operator of facility.
§ 1.132-7 (c) Valuation of non-excluded meals provided at an employer-operated eating facility for employees.
§ 1.132-8 (a) Application of nondiscrimination rules.
(1) General rule.
(2) Consequences of discrimination.
(3) Scope of the nondiscrimination rules provided in this section.
§ 1.132-8 (b) Aggregation of Employees.
(1) Section 132(a) (1) and (2).
(2) Section 132(e)(2).
(3) Classes of employees who may be excluded.
§ 1.132-8 (c) Availability on substantially the same terms.
(1) General rule.
(2) Certain terms relating to priority.
§ 1.132-8 (d) Testing for discrimination.
(1) Classification test.
(2) Classifications that are per se discriminatory.
(3) Former employees.
(4) Restructuring of benefits.
(5) Employer-operated eating facilities for employees.
§ 1.132-8 (e) Cash bonuses or rebates.
§ 1.132-8 (f) Highly compensated employee.
(1) Government and non-government employees.
(2) Former employees.
§ 1.132-9 (a) Table of contents.
§ 1.132-9 (b) Questions and answers.
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Treas. Reg. §1.132-1Exclusion from gross income for certain fringe benefits
(a) In general. Gross income does not include any fringe benefit which qualifies as a—
(1) No-additional-cost service,
(2) Qualified employee discount,
(3) Working condition fringe, or
(4) De minimis fringe.
Special rules apply with respect to certain on-premises gyms and other athletic facilities (§ 1.132-1(e)), demonstration use of employer-provided automobiles by full-time automobile salesmen (§ 1.132-5(o)), parking provided to an employee on or near the business premises of the employer (§ 1.132-5(p)), and on-premises eating facilities (§ 1.132-7).
(b) Definition of employee—(1) No-additional-cost services and qualified employee discounts. For purposes of section 132(a)(1) (relating to no-additional-cost services) and section 132(a)(2) (relating to qualified employee discounts), the term “employee” (with respect to a line of business of an employer means—
(i) Any individual who is currently employed by the employer in the line of business,
(ii) Any individual who was formerly employed by the employer in the line of business and who separated from service with the employer in the line of business by reason of retirement or disability, and
(iii) Any widow or widower of an individual who died while employed by the employer in the line of business or who separated from service with the employer in the line of business by reason of retirement or disability.
For purposes of this paragraph (b)(1), any partner who performs services for a partnership is considered employed by the partnership. In addition, any use by the spouse or dependent child (as defined in paragraph (b)(5) of this section) of the employee will be treated as use by the employee. For purposes of section 132(a)(1) (relating to no-additional-cost services), any use of air transportation by a parent of an employee (determined without regard to section 132(f)(1)(B) and paragraph (b)(1)(iii) of this section) will be treated as use by the employee.
(2) Working condition fringes. For purposes of section 132(a)(3) (relating to working condition fringes), the term “employee” means—
(i) Any individual who is currently employed by the employer,
(ii) Any partner who performs services for the partnership,
(iii) Any director of the employer, and
(iv) Any independent contractor who performs services for the employer.
Notwithstanding anything in this paragraph (b)(2) to the contrary, an independent contractor who performs services for the employer cannot exclude the value of parking or the use of consumer goods provided pursuant to a product testing program under § 1.132-5(n); in addition, any director of the employer cannot exclude the value of the use of consumer goods provided pursuant to a product testing program under § 1.132-5(n).
(3) On-premises athletic facilities. For purposes of section 132(h)(5) (relating to on-premises athletic facilities), the term “employee” means—
(i) Any individual who is currently employed by the employer,
(ii) Any individual who was formerly employed by the employer and who separated from service with the employer by reason of retirement or disability, and
(iii) Any widow or widower of an individual who died while employed by the employer or who separated from service with the employer by reason of retirement or disability.
For purposes of this paragraph (b)(3), any partner who performs services for a partnership is considered employed by the partnership. In addition, any use by the spouse or dependent child (as defined in paragraph (b)(5) of this section) of the employee will be treated as use by the employee.
(4) De minimis fringes. For purposes of section 132(a)(4) (relating to de minimis fringes), the term “employee” means any recipient of a fringe benefit.
(5) Dependent child. The term “dependent child” means any son, stepson, daughter, or stepdaughter of the employee who is a dependent of the employee, or both of whose parents are deceased and who has not attained age 25. Any child to whom section 152(e) applies will be treated as the dependent of both parents.
(c) Special rules for employers—Effect of section 414. All employees treated as employed by a single employer under section 414 (b), (c), (m), or (o) will be treated as employed by a single employer for purposes of this section. Thus, employees of one corporation that is part of a controlled group of corporations may under certain circumstances be eligible to receive section 132 benefits from the other corporations that comprise the controlled group. However, the aggregation of employers described in this paragraph (c) does not change the other requirements for an exclusion, such as the line of business requirement. Thus, for example, if a controlled group of corporations consists of two corporations that operate in different lines of business, the corporations are not treated as operating in the same line of business even though the corporations are treated as one employer.
(d) Customers not to include employees. For purposes of section 132 and the regulations thereunder, the term “customer” means any customer who is not an employee. However, the preceding sentence does not apply to section 132(c)(2) (relating to the gross profit percentage for determining a qualified employee discount). Thus, an employer that provides employee discounts cannot exclude sales made to employees in determining the aggregate sales to customers.
(e) Treatment of on-premises athletic facilities—(1) In general. Gross income does not include the value of any on-premises athletic facility provided by an employer to its employees. For purposes of section 132(h)(5) and this paragraph (e), the term “on-premises athletic facility” means any gym or other athletic facility (such as a pool, tennis court, or golf course)—
(i) Which is located on the premises of the employer, (ii) Which is operated by the employer, and (iii) Substantially all of the use of which during the calendar year is by employees of the employer, their spouses, and their dependent children.
For purposes of paragraph (e) (1) (iii) of this section, the term “dependent children” has the same meaning as the plural of the term “dependent child” in paragraph (b)(5) of this section. The exclusion of this paragraph (e) does not apply to any athletic facility if access to the facility is made available to the general public through the sale of memberships, the rental of the facility, or a similar arrangement.
(2) Premises of the employer. The athletic facility need not be located on the employer's business premises. However, the athletic facility must be located on premises of the employer. The exclusion provided in this paragraph (e) applies whether the premises are owned or leased by the employer; in addition, the exclusion is available even if the employer is not a named lessee on the lease so long as the employer pays reasonable rent. The exclusion provided in this paragraph (e) does not apply to any athletic facility that is a facility for residential use. Thus, for example, a resort with accompanying athletic facilities (such as tennis courts, pool, and gym) would not qualify for the exclusion provided in this paragraph (e). An athletic facility is considered to be located on the employer's premises if the facility is located on the premises of a voluntary employees' beneficiary association funded by the employer.
(3) Application of rules to membership in an athletic facility. The exclusion provided in this paragraph (e) does not apply to any membership in an athletic facility (including health clubs or country clubs) unless the facility is owned (or leased) and operated by the employer and substantially all the use of the facility is by employees of the employer, their spouses, and their dependent children. Therefore, membership in a health club or country club not meeting the rules provided in this paragraph (e) would not qualify for the exclusion.
(4) Operation by the employer. An employer is considered to operate the athletic facility if the employer operates the facility through its own employees, or if the employer contracts out to another to operate the athletic facility. For example, if an employer hires an independent contractor to operate the athletic facility for the employer's employees, the facility is considered to be operated by the employer. In addition, if an athletic facility is operated by more than one employer, it is considered to be operated by each employer. For purposes of paragraph (e) (1) (iii) of this section, substantially all of the use of a facility that is operated by more than one employer must be by employees of the various employers, their spouses, and their dependent children. Where the facility is operated by more than one employer, an employer that pays rent either directly to the owner of the premises or to a sublessor of the premises is eligible for the exclusion. If an athletic facility is operated by a voluntary employees' beneficiary association funded by an employer, the employer is considered to operate the facility.
(5) Nonapplicability of nondiscrimination rules. The nondiscrimination rules of section 132 and § 1.132-8 do not apply to on-premises athletic facilities.
(f) Nonapplicability of section 132 in certain cases—(1) Tax treatment provided for in another section. If the tax treatment or a particular fringe benefit is expressly provided for in another section of Chapter 1 of the Internal Revenue Code of 1986, section 132 and the applicable regulations (except for section 132 (e) and the regulations thereunder) do not apply to such fringe benefit. For example, because section 129 provides an exclusion from gross income for amounts paid or incurred by an employer for dependent care assistance for an employee, the exclusions under section 132 and this section do not apply to the provision by an employer to an employee of dependent care assistance. Similarly, because section 117 (d) applies to tuition reductions, the exclusions under section 132 do not apply to free or discounted tuition provided to an employee by an organization operated by the employer, whether the tuition is for study at or below the graduate level. Of course, if the amounts paid by the employer are for education relating to the employee's trade or business of being an employee of the employer so that, if the employee paid for the education, the amount paid could be deducted under section 162, the costs of the education may be eligible for exclusion as a working condition fringe.
(2) Limited statutory exclusions. If another section of Chapter 1 of the Internal Revenue Code of 1986 provides an exclusion from gross income based on the cost of the benefit provided to the employee and such exclusion is a limited amount, section 132 and the regulations thereunder may apply to the extent the cost of the benefit exceeds the statutory exclusion.
(g) Effective date. Sections 1.132-0, 1.132-1, 1.132-2, 1.132-3, 1.132-4, 1.132-5, 1.132-6, 1.132-7 and 1.132-8 are effective as of January 1, 1989, except that §§ 1.132-1(b)(1) with respect to the use of air transportation by a parent of an employee and 1.132-4(d) are effective as of January 1, 1985. Furthermore, in § 1.132-5, the eleventh sentence of paragraph (m)(1), Examples 6 and 7 in paragraph (m)(8), and paragraphs (m)(2)(i), (m)(2)(v), (m)(3)(iv), (m)(6), (m)(7), and (r) are effective December 30, 1992; however, taxpayers may treat the rules as applicable to benefits provided on or after January 1, 1989. For the applicable rules relating to employer-provided transportation for security concerns prior to December 30, 1992, see § 1.132-5(m) (as contained in 26 CFR part 1 (§§ 1.61 to 1.169) revised April 1, 1992).
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Treas. Reg. §1.132-1(a)In general.
In general. Gross income does not include any fringe benefit which qualifies as a—
(1) No-additional-cost service,
(2) Qualified employee discount,
(3) Working condition fringe, or
(4) De minimis fringe.
Special rules apply with respect to certain on-premises gyms and other athletic facilities (§ 1.132-1(e)), demonstration use of employer-provided automobiles by full-time automobile salesmen (§ 1.132-5(o)), parking provided to an employee on or near the business premises of the employer (§ 1.132-5(p)), and on-premises eating facilities (§ 1.132-7).
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Treas. Reg. §1.132-1(b)Definition of employee—(1) No-additional-cost services and qualified employee discounts.
Definition of employee—(1) No-additional-cost services and qualified employee discounts. For purposes of section 132(a)(1) (relating to no-additional-cost services) and section 132(a)(2) (relating to qualified employee discounts), the term “employee” (with respect to a line of business of an employer means—
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Treas. Reg. §1.132-1(c)Special rules for employers—Effect of section 414.
Special rules for employers—Effect of section 414. All employees treated as employed by a single employer under section 414 (b), (c), (m), or (o) will be treated as employed by a single employer for purposes of this section. Thus, employees of one corporation that is part of a controlled group of corporations may under certain circumstances be eligible to receive section 132 benefits from the other corporations that comprise the controlled group. However, the aggregation of employers described in this paragraph (c) does not change the other requirements for an exclusion, such as the line of business requirement. Thus, for example, if a controlled group of corporations consists of two corporations that operate in different lines of business, the corporations are not treated as operating in the same line of business even though the corporations are treated as one employer.
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Treas. Reg. §1.132-1(d)Customers not to include employees.
Customers not to include employees. For purposes of section 132 and the regulations thereunder, the term “customer” means any customer who is not an employee. However, the preceding sentence does not apply to section 132(c)(2) (relating to the gross profit percentage for determining a qualified employee discount). Thus, an employer that provides employee discounts cannot exclude sales made to employees in determining the aggregate sales to customers.
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Treas. Reg. §1.132-1(e)Treatment of on-premises athletic facilities—(1) In general.
Treatment of on-premises athletic facilities—(1) In general. Gross income does not include the value of any on-premises athletic facility provided by an employer to its employees. For purposes of section 132(h)(5) and this paragraph (e), the term “on-premises athletic facility” means any gym or other athletic facility (such as a pool, tennis court, or golf course)—
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Treas. Reg. §1.132-1(f)Nonapplicability of section 132 in certain cases—(1) Tax treatment provided for in another section.
Nonapplicability of section 132 in certain cases—(1) Tax treatment provided for in another section. If the tax treatment or a particular fringe benefit is expressly provided for in another section of Chapter 1 of the Internal Revenue Code of 1986, section 132 and the applicable regulations (except for section 132 (e) and the regulations thereunder) do not apply to such fringe benefit. For example, because section 129 provides an exclusion from gross income for amounts paid or incurred by an employer for dependent care assistance for an employee, the exclusions under section 132 and this section do not apply to the provision by an employer to an employee of dependent care assistance. Similarly, because section 117 (d) applies to tuition reductions, the exclusions under section 132 do not apply to free or discounted tuition provided to an employee by an organization operated by the employer, whether the tuition is for study at or below the graduate level. Of course, if the amounts paid by the employer are for education relating to the employee's trade or business of being an employee of the employer so that, if the employee paid for the education, the amount paid could be deducted under section 162, the costs of the education may be eligible for exclusion as a working condition fringe.
(2) Limited statutory exclusions. If another section of Chapter 1 of the Internal Revenue Code of 1986 provides an exclusion from gross income based on the cost of the benefit provided to the employee and such exclusion is a limited amount, section 132 and the regulations thereunder may apply to the extent the cost of the benefit exceeds the statutory exclusion.
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Treas. Reg. §1.132-1(g)Effective date.
Effective date. Sections 1.132-0, 1.132-1, 1.132-2, 1.132-3, 1.132-4, 1.132-5, 1.132-6, 1.132-7 and 1.132-8 are effective as of January 1, 1989, except that §§ 1.132-1(b)(1) with respect to the use of air transportation by a parent of an employee and 1.132-4(d) are effective as of January 1, 1985. Furthermore, in § 1.132-5, the eleventh sentence of paragraph (m)(1), Examples 6 and 7 in paragraph (m)(8), and paragraphs (m)(2)(i), (m)(2)(v), (m)(3)(iv), (m)(6), (m)(7), and (r) are effective December 30, 1992; however, taxpayers may treat the rules as applicable to benefits provided on or after January 1, 1989. For the applicable rules relating to employer-provided transportation for security concerns prior to December 30, 1992, see § 1.132-5(m) (as contained in 26 CFR part 1 (§§ 1.61 to 1.169) revised April 1, 1992).
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Treas. Reg. §1.132-1(i)Which is located on the premises of the employer, (ii) Which is operated by the employer, and (iii) Substantially all of the use of which during the calendar year is by employees of the employer, their spouses, and their dependent children.
Which is located on the premises of the employer, (ii) Which is operated by the employer, and (iii) Substantially all of the use of which during the calendar year is by employees of the employer, their spouses, and their dependent children.
For purposes of paragraph (e) (1) (iii) of this section, the term “dependent children” has the same meaning as the plural of the term “dependent child” in paragraph (b)(5) of this section. The exclusion of this paragraph (e) does not apply to any athletic facility if access to the facility is made available to the general public through the sale of memberships, the rental of the facility, or a similar arrangement.
(2) Premises of the employer. The athletic facility need not be located on the employer's business premises. However, the athletic facility must be located on premises of the employer. The exclusion provided in this paragraph (e) applies whether the premises are owned or leased by the employer; in addition, the exclusion is available even if the employer is not a named lessee on the lease so long as the employer pays reasonable rent. The exclusion provided in this paragraph (e) does not apply to any athletic facility that is a facility for residential use. Thus, for example, a resort with accompanying athletic facilities (such as tennis courts, pool, and gym) would not qualify for the exclusion provided in this paragraph (e). An athletic facility is considered to be located on the employer's premises if the facility is located on the premises of a voluntary employees' beneficiary association funded by the employer.
(3) Application of rules to membership in an athletic facility. The exclusion provided in this paragraph (e) does not apply to any membership in an athletic facility (including health clubs or country clubs) unless the facility is owned (or leased) and operated by the employer and substantially all the use of the facility is by employees of the employer, their spouses, and their dependent children. Therefore, membership in a health club or country club not meeting the rules provided in this paragraph (e) would not qualify for the exclusion.
(4) Operation by the employer. An employer is considered to operate the athletic facility if the employer operates the facility through its own employees, or if the employer contracts out to another to operate the athletic facility. For example, if an employer hires an independent contractor to operate the athletic facility for the employer's employees, the facility is considered to be operated by the employer. In addition, if an athletic facility is operated by more than one employer, it is considered to be operated by each employer. For purposes of paragraph (e) (1) (iii) of this section, substantially all of the use of a facility that is operated by more than one employer must be by employees of the various employers, their spouses, and their dependent children. Where the facility is operated by more than one employer, an employer that pays rent either directly to the owner of the premises or to a sublessor of the premises is eligible for the exclusion. If an athletic facility is operated by a voluntary employees' beneficiary association funded by an employer, the employer is considered to operate the facility.
(5) Nonapplicability of nondiscrimination rules. The nondiscrimination rules of section 132 and § 1.132-8 do not apply to on-premises athletic facilities.
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Treas. Reg. §1.132-2No-additional-cost services
(a) In general—(1) Definition. Gross income does not include the value of a no-additional-cost service. A “no-additional-cost service” is any service provided by an employer to an employee for the employee's personal use if—
(i) The service is offered for sale by the employer to its customers in the ordinary course of the line of business of the employer in which the employee performs substantial services, and
(ii) The employer incurs no substantial additional cost in providing the service to the employee (including foregone revenue and excluding any amount paid by or on behalf of the employee for the service).
For rules relating to the line of business limitation, see § 1.132-4. For purposes of this section, a service will not be considered to be offered for sale by the employer to its customers if that service is primarily provided to employees and not to the employer's customers.
(2) Excess capacity services. Services that are eligible for treatment as no-additional-cost services include excess capacity services such as hotel accommodations; transportation by aircraft, train, bus, subway, or cruise line; and telephone services. Services that are not eligible for treatment as no-additional-cost services are non-excess capacity services such as the facilitation by a stock brokerage firm of the purchase of stock. Employees who receive non-excess capacity services may, however, be eligible for a qualified employee discount of up to 20 percent of the value of the service provided. See § 1.132-3.
(3) Cash rebates. The exclusion for a no-additional-cost service applies whether the service is provided at no charge or at a reduced price. The exclusion also applies if the benefit is provided through a partial or total cash rebate of an amount paid for the service.
(4) Applicability of nondiscrimination rules. The exclusion for a no-additional-cost service applies to highly compensated employees only if the service is available on substantially the same terms to each member of a group of employees that is defined under a reasonable classification set up by the employer that does not discriminate in favor of highly compensated employees. See § 1.132-8.
(5) No substantial additional cost—(i) In general. The exclusion for a no-additional-cost service applies only if the employer does not incur substantial additional cost in providing the service to the employee. For purposes of the preceding sentence, the term “cost” includes revenue that is forgone because the service is provided to an employee rather than a nonemployee. (For purposes of determining whether any revenue is forgone, it is assumed that the employee would not have purchased the service unless it were available to the employee at the actual price charged to the employee.) Whether an employer incurs substantial additional cost must be determined without regard to any amount paid by the employee for the service. Thus, any reimbursement by the employee for the cost of providing the service does not affect the determination of whether the employer incurs substantial additional cost.
(ii) Labor intensive services. An employer must include the cost of labor incurred in providing services to employees when determining whether the employer has incurred substantial additional cost. An employer incurs substantial additional cost, whether non-labor costs are incurred, if a substantial amount of time is spent by the employer or its employees in providing the service to employees. This would be the result whether the time spent by the employer or its employees in providing the services would have been “idle,” or if the services were provided outside normal business hours. An employer generally incurs no substantial additional cost, however, if the services provided to the employee are merely incidental to the primary service being provided by the employer. For example, the in-flight services of a flight attendant and the cost of in-flight meals provided to airline employees traveling on a space-available basis are merely incidental to the primary service being provided (i.e., air transportation). Similarly, maid service provided to hotel employees renting hotel rooms on a space-available basis is merely incidental to the primary service being provided (i.e., hotel accommodations).
(6) Payments for telephone service. Payment made by an entity subject to the modified final judgment (as defined in section 559(c)(5) of the Tax Reform Act of 1984) of all or part of the cost of local telephone service provided to an employee by a person other than an entity subject to the modified final judgment shall be treated as telephone service provided to the employee by the entity making the payment for purposes of this section. The preceding sentence also applies to a rebate of the amount paid by the employee for the service and a payment to the person providing the service. This paragraph (a)(6) applies only to services and employees described in § 1.132-4 (c). For a special line of business rule relating to such services and employees, see § 1.132-4 (c).
(b) Reciprocal agreements. For purposes of the exclusion from gross income for a no-additional-cost service, an exclusion is available to an employee of one employer for a no-additional-cost service provided by an unrelated employer only if all of the following requirements are satisfied—
(1) The service provided to such employee by the unrelated employer is the same type of service generally provided to nonemployee customers by both the line of business in which the employee works and the line of business in which the service is provided to such employee (so that the employee would be permitted to exclude from gross income the value of the service if such service were provided directly by the employee's employer);
(2) Both employers are parties to a written reciprocal agreement under which a group of employees of each employer, all of whom perform substantial services in the same line of business, may receive no-additional-cost services from the other employer; and
(3) Neither employer incurs any substantial additional cost (including forgone revenue) in providing such service to the employees of the other employer, or pursuant to such agreement. If one employer receives a substantial payment from the other employer with respect to the reciprocal agreement, the paying employer will be considered to have incurred a substantial additional cost pursuant to the agreement, and consequently services performed under the reciprocal agreement will not qualify for exclusion as no-additional-cost services.
(c) Example. The rules of this section are illustrated by the following example:
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Treas. Reg. §1.132-2(a)In general—(1) Definition.
In general—(1) Definition. Gross income does not include the value of a no-additional-cost service. A “no-additional-cost service” is any service provided by an employer to an employee for the employee's personal use if—
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Treas. Reg. §1.132-2(b)Reciprocal agreements.
Reciprocal agreements. For purposes of the exclusion from gross income for a no-additional-cost service, an exclusion is available to an employee of one employer for a no-additional-cost service provided by an unrelated employer only if all of the following requirements are satisfied—
(1) The service provided to such employee by the unrelated employer is the same type of service generally provided to nonemployee customers by both the line of business in which the employee works and the line of business in which the service is provided to such employee (so that the employee would be permitted to exclude from gross income the value of the service if such service were provided directly by the employee's employer);
(2) Both employers are parties to a written reciprocal agreement under which a group of employees of each employer, all of whom perform substantial services in the same line of business, may receive no-additional-cost services from the other employer; and
(3) Neither employer incurs any substantial additional cost (including forgone revenue) in providing such service to the employees of the other employer, or pursuant to such agreement. If one employer receives a substantial payment from the other employer with respect to the reciprocal agreement, the paying employer will be considered to have incurred a substantial additional cost pursuant to the agreement, and consequently services performed under the reciprocal agreement will not qualify for exclusion as no-additional-cost services.
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Treas. Reg. §1.132-2(c)Example.
Example. The rules of this section are illustrated by the following example:
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Treas. Reg. §1.132-2(i)§1.132-2(i)
The service is offered for sale by the employer to its customers in the ordinary course of the line of business of the employer in which the employee performs substantial services, and
(ii) The employer incurs no substantial additional cost in providing the service to the employee (including foregone revenue and excluding any amount paid by or on behalf of the employee for the service).
For rules relating to the line of business limitation, see § 1.132-4. For purposes of this section, a service will not be considered to be offered for sale by the employer to its customers if that service is primarily provided to employees and not to the employer's customers.
(2) Excess capacity services. Services that are eligible for treatment as no-additional-cost services include excess capacity services such as hotel accommodations; transportation by aircraft, train, bus, subway, or cruise line; and telephone services. Services that are not eligible for treatment as no-additional-cost services are non-excess capacity services such as the facilitation by a stock brokerage firm of the purchase of stock. Employees who receive non-excess capacity services may, however, be eligible for a qualified employee discount of up to 20 percent of the value of the service provided. See § 1.132-3.
(3) Cash rebates. The exclusion for a no-additional-cost service applies whether the service is provided at no charge or at a reduced price. The exclusion also applies if the benefit is provided through a partial or total cash rebate of an amount paid for the service.
(4) Applicability of nondiscrimination rules. The exclusion for a no-additional-cost service applies to highly compensated employees only if the service is available on substantially the same terms to each member of a group of employees that is defined under a reasonable classification set up by the employer that does not discriminate in favor of highly compensated employees. See § 1.132-8.
(5) No substantial additional cost—(i) In general. The exclusion for a no-additional-cost service applies only if the employer does not incur substantial additional cost in providing the service to the employee. For purposes of the preceding sentence, the term “cost” includes revenue that is forgone because the service is provided to an employee rather than a nonemployee. (For purposes of determining whether any revenue is forgone, it is assumed that the employee would not have purchased the service unless it were available to the employee at the actual price charged to the employee.) Whether an employer incurs substantial additional cost must be determined without regard to any amount paid by the employee for the service. Thus, any reimbursement by the employee for the cost of providing the service does not affect the determination of whether the employer incurs substantial additional cost.
(ii) Labor intensive services. An employer must include the cost of labor incurred in providing services to employees when determining whether the employer has incurred substantial additional cost. An employer incurs substantial additional cost, whether non-labor costs are incurred, if a substantial amount of time is spent by the employer or its employees in providing the service to employees. This would be the result whether the time spent by the employer or its employees in providing the services would have been “idle,” or if the services were provided outside normal business hours. An employer generally incurs no substantial additional cost, however, if the services provided to the employee are merely incidental to the primary service being provided by the employer. For example, the in-flight services of a flight attendant and the cost of in-flight meals provided to airline employees traveling on a space-available basis are merely incidental to the primary service being provided (i.e., air transportation). Similarly, maid service provided to hotel employees renting hotel rooms on a space-available basis is merely incidental to the primary service being provided (i.e., hotel accommodations).
(6) Payments for telephone service. Payment made by an entity subject to the modified final judgment (as defined in section 559(c)(5) of the Tax Reform Act of 1984) of all or part of the cost of local telephone service provided to an employee by a person other than an entity subject to the modified final judgment shall be treated as telephone service provided to the employee by the entity making the payment for purposes of this section. The preceding sentence also applies to a rebate of the amount paid by the employee for the service and a payment to the person providing the service. This paragraph (a)(6) applies only to services and employees described in § 1.132-4 (c). For a special line of business rule relating to such services and employees, see § 1.132-4 (c).
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Treas. Reg. §1.132-3Qualified employee discounts
(a) In general—(1) Definition. Gross income does not include the value of a qualified employee discount. A “qualified employee discount” is any employee discount with respect to qualified property or services provided by an employer to an employee for use by the employee to the extent the discount does not exceed—
(i) The gross profit percentage multiplied by the price at which the property is offered to customers in the ordinary course of the employer's line of business, for discounts on property, or
(ii) Twenty percent of the price at which the service is offered to customers, for discounts on services.
(2) Qualified property or services—(i) In general. The term “qualified property or services” means any property or services that are offered for sale to customers in the ordinary course of the line of business of the employer in which the employee performs substantial services. For rules relating to the line of business limitation, see § 1.132-4.
(ii) Exception for certain property. The term “qualified property” does not include real property and it does not include personal property (whether tangible or intangible) of a kind commonly held for investment. Thus, an employee may not exclude from gross income the amount of an employee discount provided on the purchase of securities, commodities, or currency, or of either residential or commercial real estate, whether or not the particular purchase is made for investment purposes.
(iii) Property and services not offered in ordinary course of business. The term “qualified property or services” does not include any property or services of a kind that is not offered for sale to customers in the ordinary course of the line of business of the employer. For example, employee discounts provided on property or services that are offered for sale primarily to employees and their families (such as merchandise sold at an employee store or through an employer-provided catalog service) may not be excluded from gross income. For rules relating to employer-operated eating facilities, see § 1.132-7, and for rules relating to employer-operated on-premises athletic facilities, see § 1.132-1(e).
(3) No reciprocal agreement exception. The exclusion for a qualified employee discount does not apply to property or services provided by another employer pursuant to a written reciprocal agreement that exists between employers to provide discounts on property and services to employees of the other employer.
(4) Property or services provided without charge, at a reduced price, or by rebates. The exclusion for a qualified employee discount applies whether the property or service is provided at no charge (in which case only part of the discount may be excludable as a qualified employee discount) or at a reduced price. The exclusion also applies if the benefit is provided through a partial or total cash rebate of an amount paid for the property or service.
(5) Property or services provided directly by the employer or indirectly through a third party. A qualified employee discount may be provided either directly by the employer or indirectly through a third party. For example, an employee of an appliance manufacturer may receive a qualified employee discount on the manufacturer's appliances purchased at a retail store that offers such appliances for sale to customers. The employee may exclude the amount of the qualified employee discount whether the employee is provided the appliance at no charge or purchases it at a reduced price, or whether the employee receives a partial or total cash rebate from either the employer-manufacturer or the retailer. If an employee receives additional rights associated with the property that are not provided by the employee's employer to customers in the ordinary course of the line of business in which the employee performs substantial services (such as the right to return or exchange the property or special warranty rights), the employee may only receive a qualified employee discount with respect to the property and not the additional rights. Receipt of such additional rights may occur, for example, when an employee of a manufacturer purchases property manufactured by the employee's employer at a retail outlet.
(6) Applicability of nondiscrimination rules. The exclusion for a qualified employee discount applies to highly compensated employees only if the discount is available on substantially the same terms to each member of a group of employees that is defined under a reasonable classification set up by the employer that does not discriminate in favor of highly compensated employees. See § 1.132-8.
(b) Employee discount—(1) Definition. The term “employee discount” means the excess of—
(i) The price at which the property or service is being offered by the employer for sale to customers, over
(ii) The price at which the property or service is provided by the employer to an employee for use by the employee. A transfer of property by an employee without consideration is treated as use by the employee for purposes of this section. Thus, for example, if an employee receives a discount on property offered for sale by his employer to customers and the employee makes a gift of the property to his parent, the property will be considered to be provided for use by the employee; thus, the discount will be eligible for exclusion as a qualified employee discount.
(2) Price to customers—(i) Determined at time of sale. In determining the amount of an employee discount, the price at which the property or service is being offered to customers at the time of the employee's purchase is controlling. For example, assume that an employer offers a product to customers for $20 during the first six months of a calendar year, but at the time the employee purchases the product at a discount, the price at which the product is being offered to customers is $25. In this case, the price from which the employee discount is measured is $25. Assume instead that, at the time the employee purchases the product at a discount, the price at which the product is being offered to customers is $15 and the price charged the employee is $12. The employee discount is measured from $15, the price at which the product is offered for sale to customers at the time of the employee purchase. Thus, the employee discount is $15 −$12, or $3.
(ii) Quantity discount not reflected. The price at which a property or service is being offered to customers cannot reflect any quantity discount unless the employee actually purchases the requisite quantity of the property or service.
(iii) Price to employer's customers controls. In determining the amount of an employee discount, the price at which a property or service is offered to customers of the employee's employer is controlling. Thus, the price at which the property is sold to the wholesale customers of a manufacturer will generally be lower than the price at which the same property is sold to the customers of a retailer. However, see paragraph (a)(5) of this section regarding the effect of a wholesaler providing to its employees additional rights not provided to customers of the wholesaler in the ordinary course of its business.
(iv) Discounts to discrete customer or consumer groups. Subject to paragraph (2)(ii) of this section, if an employer offers for sale property or services at one or more discounted prices to discrete customer or consumer groups, and sales at all such discounted prices comprise at least 35 percent of the employer's gross sales for a representative period, then in determining the amount of an employee discount, the price at which such property or service is being offered to customers for purposes of this section is a discounted price. The applicable discounted price is the current undiscounted price, reduced by the percentage discount at which the greatest percentage of the employer's discounted gross sales are made for such representative period. If sales at different percentage discounts equal the same percentage of the employer's gross sales, the price at which the property or service is being provided to customers may be reduced by the average of the discounts offered to each of the two groups. For purposes of this section, a representative period is the taxable year of the employer immediately preceding the taxable year in which the property or service is provided to the employee at a discount. If more than one employer would be aggregated under section 414 (b), (c), (m), or (o), and not all of the employers have the same taxable year, the employers required to be aggregated must designate the 12-month period to be used in determining gross sales for a representative period. The 12-month period designated, however, must be used on a consistent basis.
(v) Examples. The rules provided in this paragraph (b)(2) are illustrated by the following examples:
(3) Damaged, distressed, or returned goods. If an employee pays at least fair market value for damaged, distressed, or returned property, such employee will not have income attributable to such purchase.
(c) Gross profit percentage—(1) In general—(i) General rule. An exclusion from gross income for an employee discount on qualified property is limited to the price at which the property is being offered to customers in the ordinary course of the employer's line of business, multiplied by the employer's gross profit percentage. The term “gross profit percentage” means the excess of the aggregate sales price of the property sold by the employer to customers (including employees) over the employer's aggregate cost of the property, then divided by the aggregate sales price.
(ii) Calculation of gross profit percentage. The gross profit percentage must be calculated separately for each line of business based on the aggregate sales price and aggregate cost of property in that line of business for a representative period. For purposes of this section, a representative period is the taxable year of the employer immediately preceding the taxable year in which the discount is available. For example, if the aggregate amount of sales of property in an employer's line of business for the prior taxable year was $800,000, and the aggregate cost of the property for the year was $600,000, the gross profit percentage would be 25 percent ($800,000 minus $600,000, then divided by $800,000). If two or more employers are required to aggregate under section 414 (b), (c), (m), or (o) (aggregated employer), and if all of the aggregated employers do not share the same taxable year, then the aggregated employers must designate the 12-month period to be used in determining the gross profit percentage. The 12-month period designated, however, must be used on a consistent basis. If an employee performs substantial services in more than one line of business, the gross profit percentage of the line of business in which the property is sold determines the amount of the excludable employee discount.
(iii) Special rule for employers in their first year of existence. An employer in its first year of existence may estimate the gross profit percentage of a line of business based on its mark-up from cost. Alternatively, an employer in its first year of existence may determine the gross profit percentage by reference to an appropriate industry average.
(iv) Redetermination of gross profit percentage. If substantial changes in an employer's business indicate at any time that it is inappropriate for the prior year's gross profit percentage to be used for the current year, the employer must, within a reasonable period, redetermine the gross profit percentage for the remaining portion of the current year as if such portion of the year were the first year of the employer's existence.
(2) Line of business. In general, an employer must determine the gross profit percentage on the basis of all property offered to customers (including employees) in each separate line of business. An employer may instead select a classification of property that is narrower than the applicable line of business. However, the classification must be reasonable. For example, if an employer computes gross profit percentage according to the department in which products are sold, such classification is reasonable. Similarly, it is reasonable to compute gross profit percentage on the basis of the type of merchandise sold (such as high mark-up and low mark-up classifications). It is not reasonable, however, for an employer to classify certain low mark-up products preferred by certain employees (such as highly compensated employees) with high mark-up products or to classify certain high mark-up products preferred by other employees with low mark-up products.
(3) Generally accepted accounting principles. In general, the aggregate sales price of property must be determined in accordance with generally accepted accounting principles. An employer must compute the aggregate cost of property in the same manner in which it is computed for the employer's Federal income tax liability; thus, for example, section 263A and the regulations thereunder apply in determining the cost of property.
(d) Treatment of leased sections of department stores—(1) In general—(i) General rule. For purposes of determining whether employees of a leased section of a department store may receive qualified employee discounts at the department store and whether employees of the department store may receive qualified employee discounts at the leased section of the department store, the leased section is treated as part of the line of business of the person operating the department store, and employees of the leased section are treated as employees of the person operating the department store as well as employees of their employer. The term “leased section of a department store” means a section of a department store where substantially all of the gross receipts of the leased section are from over-the-counter sales of property made under a lease, license, or similar arrangement where it appears to the general public that individuals making such sales are employed by the department store. A leased section of a department store which, in connection with the offering of beautician services, customarily makes sales of beauty aids in the ordinary course of business is deemed to derive substantially all of its gross receipts from over-the-counter sales of property.
(ii) Calculation of gross profit percentage. For purposes of paragraph (d) of this section, when calculating the gross profit percentage of property and services sold at a department store, sales of property and services sold at the department store, as well as sales of property and services sold at the leased section, are considered. The rule provided in the preceding sentence does not apply, however, if it is more reasonable to calculate the gross profit percentage for the department store and leased section separately, or if it would be inappropriate to combine them (such as where either the department store or the leased section but not both provides employee discounts).
(2) Employees of the leased section—(i) Definition. For purposes of this paragraph (d), “employees of the leased section” means all employees who perform substantial services at the leased section of the department store regardless of whether the employees engage in over-the-counter sales of property or services. The term “employee” has the same meaning as in section 132(f) and § 1.132-1(b)(1).
(ii) Discounts offered to either department store employees or employees of the leased section. If the requrements of this paragraph (d) are satisfied, employees of the leased section may receive qualified employee discounts at the department store whether or not employees of the department store are offered discounts at the leased section. Similarly, employees of the department store may receive a qualified employee discount at the leased section whether or not employees of the leased section are offered discounts at the department store.
(e) Excess discounts. Unless excludable under a provision of the Internal Revenue Code of 1986 other than section 132(a)(2), an employee discount provided on property is excludable to the extent of the gross profit percentage multiplied by the price at which the property is being offered for sale to customers. If an employee discount exceeds the gross profit percentage, the excess discount is includible in the employee's income. For example, if the discount on employer-purchased property is 30 percent and the employer's gross profit percentage for the period in the relevant line of business is 25 percent, then 5 percent of the price at which the property is being offered for sale to customers is includible in the empoyee's income. With respect to services, an employee discount of up to 20 percent may be excludable. If an employee discount exceeds 20 percent, the excess discount is includible in the employee's income. For example, assume that a commercial airline provides a pass to each of its employees permitting the employees to obtain a free round-trip coach ticket with a confirmed seat to any destination the airline services. Neither the exclusion of section 132(a)(1) (relating to no-additional-cost services) nor any other statutory exclusion applies to a flight taken primarily for personal purposes by an employee under this program. However, an employee discount of up to 20 percent may be excluded as a qualified employee discount. Thus, if the price charged to customers for the flight taken is $300 (under restrictions comparable to those actually placed on travel associated with the employee airline ticket), $60 is excludible from gross income as a qualified employee discount and $240 is includible in gross income.
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Treas. Reg. §1.132-3(a)In general—(1) Definition.
In general—(1) Definition. Gross income does not include the value of a qualified employee discount. A “qualified employee discount” is any employee discount with respect to qualified property or services provided by an employer to an employee for use by the employee to the extent the discount does not exceed—
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Treas. Reg. §1.132-3(b)Employee discount—(1) Definition.
Employee discount—(1) Definition. The term “employee discount” means the excess of—
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Treas. Reg. §1.132-3(c)Gross profit percentage—(1) In general—(i) General rule.
Gross profit percentage—(1) In general—(i) General rule. An exclusion from gross income for an employee discount on qualified property is limited to the price at which the property is being offered to customers in the ordinary course of the employer's line of business, multiplied by the employer's gross profit percentage. The term “gross profit percentage” means the excess of the aggregate sales price of the property sold by the employer to customers (including employees) over the employer's aggregate cost of the property, then divided by the aggregate sales price.
(ii) Calculation of gross profit percentage. The gross profit percentage must be calculated separately for each line of business based on the aggregate sales price and aggregate cost of property in that line of business for a representative period. For purposes of this section, a representative period is the taxable year of the employer immediately preceding the taxable year in which the discount is available. For example, if the aggregate amount of sales of property in an employer's line of business for the prior taxable year was $800,000, and the aggregate cost of the property for the year was $600,000, the gross profit percentage would be 25 percent ($800,000 minus $600,000, then divided by $800,000). If two or more employers are required to aggregate under section 414 (b), (c), (m), or (o) (aggregated employer), and if all of the aggregated employers do not share the same taxable year, then the aggregated employers must designate the 12-month period to be used in determining the gross profit percentage. The 12-month period designated, however, must be used on a consistent basis. If an employee performs substantial services in more than one line of business, the gross profit percentage of the line of business in which the property is sold determines the amount of the excludable employee discount.
(iii) Special rule for employers in their first year of existence. An employer in its first year of existence may estimate the gross profit percentage of a line of business based on its mark-up from cost. Alternatively, an employer in its first year of existence may determine the gross profit percentage by reference to an appropriate industry average.
(iv) Redetermination of gross profit percentage. If substantial changes in an employer's business indicate at any time that it is inappropriate for the prior year's gross profit percentage to be used for the current year, the employer must, within a reasonable period, redetermine the gross profit percentage for the remaining portion of the current year as if such portion of the year were the first year of the employer's existence.
(2) Line of business. In general, an employer must determine the gross profit percentage on the basis of all property offered to customers (including employees) in each separate line of business. An employer may instead select a classification of property that is narrower than the applicable line of business. However, the classification must be reasonable. For example, if an employer computes gross profit percentage according to the department in which products are sold, such classification is reasonable. Similarly, it is reasonable to compute gross profit percentage on the basis of the type of merchandise sold (such as high mark-up and low mark-up classifications). It is not reasonable, however, for an employer to classify certain low mark-up products preferred by certain employees (such as highly compensated employees) with high mark-up products or to classify certain high mark-up products preferred by other employees with low mark-up products.
(3) Generally accepted accounting principles. In general, the aggregate sales price of property must be determined in accordance with generally accepted accounting principles. An employer must compute the aggregate cost of property in the same manner in which it is computed for the employer's Federal income tax liability; thus, for example, section 263A and the regulations thereunder apply in determining the cost of property.
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Treas. Reg. §1.132-3(d)Treatment of leased sections of department stores—(1) In general—(i) General rule.
Treatment of leased sections of department stores—(1) In general—(i) General rule. For purposes of determining whether employees of a leased section of a department store may receive qualified employee discounts at the department store and whether employees of the department store may receive qualified employee discounts at the leased section of the department store, the leased section is treated as part of the line of business of the person operating the department store, and employees of the leased section are treated as employees of the person operating the department store as well as employees of their employer. The term “leased section of a department store” means a section of a department store where substantially all of the gross receipts of the leased section are from over-the-counter sales of property made under a lease, license, or similar arrangement where it appears to the general public that individuals making such sales are employed by the department store. A leased section of a department store which, in connection with the offering of beautician services, customarily makes sales of beauty aids in the ordinary course of business is deemed to derive substantially all of its gross receipts from over-the-counter sales of property.
(ii) Calculation of gross profit percentage. For purposes of paragraph (d) of this section, when calculating the gross profit percentage of property and services sold at a department store, sales of property and services sold at the department store, as well as sales of property and services sold at the leased section, are considered. The rule provided in the preceding sentence does not apply, however, if it is more reasonable to calculate the gross profit percentage for the department store and leased section separately, or if it would be inappropriate to combine them (such as where either the department store or the leased section but not both provides employee discounts).
(2) Employees of the leased section—(i) Definition. For purposes of this paragraph (d), “employees of the leased section” means all employees who perform substantial services at the leased section of the department store regardless of whether the employees engage in over-the-counter sales of property or services. The term “employee” has the same meaning as in section 132(f) and § 1.132-1(b)(1).
(ii) Discounts offered to either department store employees or employees of the leased section. If the requrements of this paragraph (d) are satisfied, employees of the leased section may receive qualified employee discounts at the department store whether or not employees of the department store are offered discounts at the leased section. Similarly, employees of the department store may receive a qualified employee discount at the leased section whether or not employees of the leased section are offered discounts at the department store.
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Treas. Reg. §1.132-3(e)Excess discounts.
Excess discounts. Unless excludable under a provision of the Internal Revenue Code of 1986 other than section 132(a)(2), an employee discount provided on property is excludable to the extent of the gross profit percentage multiplied by the price at which the property is being offered for sale to customers. If an employee discount exceeds the gross profit percentage, the excess discount is includible in the employee's income. For example, if the discount on employer-purchased property is 30 percent and the employer's gross profit percentage for the period in the relevant line of business is 25 percent, then 5 percent of the price at which the property is being offered for sale to customers is includible in the empoyee's income. With respect to services, an employee discount of up to 20 percent may be excludable. If an employee discount exceeds 20 percent, the excess discount is includible in the employee's income. For example, assume that a commercial airline provides a pass to each of its employees permitting the employees to obtain a free round-trip coach ticket with a confirmed seat to any destination the airline services. Neither the exclusion of section 132(a)(1) (relating to no-additional-cost services) nor any other statutory exclusion applies to a flight taken primarily for personal purposes by an employee under this program. However, an employee discount of up to 20 percent may be excluded as a qualified employee discount. Thus, if the price charged to customers for the flight taken is $300 (under restrictions comparable to those actually placed on travel associated with the employee airline ticket), $60 is excludible from gross income as a qualified employee discount and $240 is includible in gross income.
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Treas. Reg. §1.132-3(i)§1.132-3(i)
The price at which the property or service is being offered by the employer for sale to customers, over
(ii) The price at which the property or service is provided by the employer to an employee for use by the employee. A transfer of property by an employee without consideration is treated as use by the employee for purposes of this section. Thus, for example, if an employee receives a discount on property offered for sale by his employer to customers and the employee makes a gift of the property to his parent, the property will be considered to be provided for use by the employee; thus, the discount will be eligible for exclusion as a qualified employee discount.
(2) Price to customers—(i) Determined at time of sale. In determining the amount of an employee discount, the price at which the property or service is being offered to customers at the time of the employee's purchase is controlling. For example, assume that an employer offers a product to customers for $20 during the first six months of a calendar year, but at the time the employee purchases the product at a discount, the price at which the product is being offered to customers is $25. In this case, the price from which the employee discount is measured is $25. Assume instead that, at the time the employee purchases the product at a discount, the price at which the product is being offered to customers is $15 and the price charged the employee is $12. The employee discount is measured from $15, the price at which the product is offered for sale to customers at the time of the employee purchase. Thus, the employee discount is $15 −$12, or $3.
(ii) Quantity discount not reflected. The price at which a property or service is being offered to customers cannot reflect any quantity discount unless the employee actually purchases the requisite quantity of the property or service.
(iii) Price to employer's customers controls. In determining the amount of an employee discount, the price at which a property or service is offered to customers of the employee's employer is controlling. Thus, the price at which the property is sold to the wholesale customers of a manufacturer will generally be lower than the price at which the same property is sold to the customers of a retailer. However, see paragraph (a)(5) of this section regarding the effect of a wholesaler providing to its employees additional rights not provided to customers of the wholesaler in the ordinary course of its business.
(iv) Discounts to discrete customer or consumer groups. Subject to paragraph (2)(ii) of this section, if an employer offers for sale property or services at one or more discounted prices to discrete customer or consumer groups, and sales at all such discounted prices comprise at least 35 percent of the employer's gross sales for a representative period, then in determining the amount of an employee discount, the price at which such property or service is being offered to customers for purposes of this section is a discounted price. The applicable discounted price is the current undiscounted price, reduced by the percentage discount at which the greatest percentage of the employer's discounted gross sales are made for such representative period. If sales at different percentage discounts equal the same percentage of the employer's gross sales, the price at which the property or service is being provided to customers may be reduced by the average of the discounts offered to each of the two groups. For purposes of this section, a representative period is the taxable year of the employer immediately preceding the taxable year in which the property or service is provided to the employee at a discount. If more than one employer would be aggregated under section 414 (b), (c), (m), or (o), and not all of the employers have the same taxable year, the employers required to be aggregated must designate the 12-month period to be used in determining gross sales for a representative period. The 12-month period designated, however, must be used on a consistent basis.
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Treas. Reg. §1.132-3(v)Examples.
Examples. The rules provided in this paragraph (b)(2) are illustrated by the following examples:
(3) Damaged, distressed, or returned goods. If an employee pays at least fair market value for damaged, distressed, or returned property, such employee will not have income attributable to such purchase.
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Treas. Reg. §1.132-4Line of business limitation
(a) In general—(1) Applicability—(i) General rule. A no-additional-cost service or a qualified employee discount provided to an employee is only available with respect to property or services that are offered for sale to customers in the ordinary course of the same line of business in which the employee receiving the property or service performs substantial services. Thus, an employee who does not perform substantial services in a particular line of business of the employer may not exclude from income under section 132 (a)(1) or (a)(2) the value of services or employee discounts received on property or services in that line of business. For rules that relax the line of business requirement, see paragraphs (b) through (g) of this section.
(ii) Property and services sold to employees rather than customers. Because the property or services must be offered for sale to customers in the ordinary course of the same line of business in which the employee performs substantial services, the line of business limitation is not satisfied if the employer's products or services are sold primarily to employees of the employer, rather than to customers. Thus, for example, an employer in the banking line of business is not considered in the variety store line of business if the employer establishes an employee store that offers variety store items for sale to the employer's employees. See § 1.132-7 for rules relating to employer-operated eating facilities, and see § 1.132-1(e) for rules relating to employer-operated on-premises athletic facilities.
(iii) Performance of substantial services in more than one line of business. An employee who performs services in more than one of the employer's lines of business may only exclude no-additional-cost services and qualified employee discounts in the lines of business in which the employee performs substantial services.
(iv) Performance of services that directly benefit more than one line of business—(A) In general. An employee who performs substantial services that directly benefit more than one line of business of an employer is treated as performing substantial services in all such line of business. For example, an employee who maintains accounting records for an employer's three lines of business may receive qualified employee discounts in all three lines of business. Similarly, if an employee of a minor line of business of an employer that is significantly interrelated with a major line of business of the employer performs substantial services that directly benefit both the major and the minor lines of business, the employee is treated as performing substantial services for both the major and the minor lines of business.
(B) Examples. The rules provided in this paragraph (a)(1)(iv) are illustrated by the following examples:
(2) Definition—(i) In general. An employer's line of business is determined by reference to the Enterprise Standard Industrial Classification Manual (ESIC Manual) prepared by the Statistical Policy Division of the U.S. Office of Management and Budget. An employer is considered to have more than one line of business if the employer offers for sale to customers property or services in more than one two-digit code classification referred to in the ESIC Manual.
(ii) Examples. Examples of two-digit classifications are general retail merchandise stores; hotels and other lodging places; auto repair, services, and garages; and food stores.
(3) Aggregation of two-digit classifications. If, pursuant to paragraph (a)(2) of this section, an employer has more than one line of business, such lines of business will be treated as a single line of business where and to the extent that one or more of the following aggregation rules apply:
(i) If it is uncommon in the industry of the employer for any of the separate lines of business of the employer to be operated without the others, the separate lines of business are treated as one line of business.
(ii) If it is common for a substantial number of employees (other than those employees who work at the headquarters or main office of the employer) to perform substantial services for more than one line of business of the employer, so that determination of which employees perform substantial services for which line or lines of business would be difficult, then the separate lines of business of the employer in which such employees perform substantial services are treated as one line of business. For example, assume that an employer operates a delicatessen with an attached service counter at which food is sold for consumption on the premises. Assume further that most but not all employees work both at the delicatessen and at the service counter. Under the aggregation rule of this paragraph (a)(3)(ii), the delicatessen and the service counter are treated as one line of business.
(iii) If the retail operations of an employer that are located on the same premises are in separate lines of business but would be considered to be within one line of business under paragraph (a)(2) of this section if the merchandise offered for sale in such lines of business were offered for sale at a department store, then the operations are treated as one line of business. For example, assume that on the same premises an employer sells both women's apparel and jewelry. Because, if sold together at a department store, the operations would be part of the same line of business, the operations are treated as one line of business.
(b) Grandfather rule for certain retail stores—(1) In general. The line of business limitation may be relaxed under the special grandfather rule of this paragraph (b). Under this special grandfather rule, if—
(i) On October 5, 1983, at least 85 percent of the employees of one member of an affiliated group (as defined in section 1504 without regard to subsections (b)(2) and (b)(4) thereof) (“first member”) were entitled to receive employee discounts at retail department stores operated by another member of the affiliated group (“second member”), and
(ii) More than 50 percent of the previous year's sales of the affiliated group are attributable to the operation of retail department stores, then, for purposes of the exclusion from gross income of a qualified employee discount, the first member is treated as engaged in the same line of business as the second member (the opeator of the retail department stores). Therefore, employees of the first member of the affiliated group may exclude from income qualified employee discounts received at the retail department stores operated by the second member. However, employees of the second member of the affiliated group may not under this paragraph (b)(1) exclude any discounts received on property or services offered for sale to customers by the first member of the affiliated group.
(2) Taxable year of affiliated group. If not all of the members of an affiliated group have the same taxable year, the affiliated group must designate the 12-month period to be used in determining the “previous year's sales” (as referred to in the grandfather rule of this paragraph (b)). The 12-month period designated, however, must be used on a consistent basis.
(3) Definition of “sales.” For purposes of this paragraph (b), the term “sales” means the gross receipts of an affiliated group, based upon the accounting methods used by its members.
(4) Retired and disabled employees. For purposes of this paragraph (b), an employee includes any individual who was, or whose spouse was, formerly employed by the first member of an affiliated group and who separated from service with the member by reason of retirement or disability if the second member of the group provided employee discounts to that individual on October 5, 1983.
(5) Increase of employee discount. If, after October 5, 1983, the employee discount described in this paragraph (b) is increased, the grandfather rule of this paragraph (b) does not apply to the amount of the increase. For example, if on January 1, 1989, the employee discount is increased from 10 percent to 15 percent, the grandfather rule will not apply to the additional 5 percent discount.
(c) Grandfather rule for telephone service provided to predivestiture retirees. All entities subject to the modified final judgment (as defined in section 559(c)(5) of the Tax Reform Act of 1984) shall be treated as a single employer engaged in the same line of business for purposes of determining whether telephone service provided to certain employees is a no-additional-cost service. The preceding sentence applies only in the case of an employee who by reason of retirement or disability separated before January 1, 1984, from the service of an entity subject to the modified final judgment. This paragraph (c) only applies to services provided to such employees as of January 1, 1984. For a special no-additional-cost service rule relating to such employees and such services, see § 1.132-2(a)(6).
(d) Special rule for certain affiliates of commercial airlines—(1) General rule. If a qualified affiliate is a member of an airline affiliated group and employees of the qualified affiliate who are directly engaged in providing airline-related services are entitled to no-additional-cost service with respect to air transportation provided by such other member, then, for purposes of applying § 1.132-2 (relating to no-additional-cost services with respect to such air transportation), such qualified affiliate shall be treated as engaged in the same line of business as such other member.
(2) “Airline affiliated group” defined. An “airline affiliated group” is an affiliated group (as defined in section 1504 (a)) one of whose members operates a commercial airline that provides air transportation to customers on a per-seat basis.
(3) “Qualified affiliate” defined. A “qualified affiliate” is any corporation that is predominantly engaged in providing airline-related services. The term “airline-related services” means any of the following services provided in connection with air transportation:
(i) Catering,
(ii) Baggage handling,
(iii) Ticketing and reservations,
(iv) Flight planning and weather analysis, and
(v) Restaurants and gift shops located at an airport.
(e) Grandfather rule for affiliated groups operating airlines. The line of business limitation may be relaxed under the special grandfather rule of this paragraph (e). Under this special grandfather rule, if, as of September 12, 1984—
(1) An individual—
(i) Was an employee (within the meaning of § 1.132-1 (b)) of one member of an affiliated group (as defined in section 1504(a)) (“first corporation”), and
(ii) Was eligible for no-additional-cost services in the form of air transportation provided by another member of such affiliated group (“second corporation”),
(2) At least 50 percent of the individuals performing services for the first corporation were, or had been employees of, or had previously performed services for, the second corporation, and
(3) The primary business of the affiliated group was air transportation of passengers, then, for purposes of applying sections 132(a) (1) and (2), with respect to no-additional-cost services and qualified employee discounts provided after December 31, 1984, for that individual by the second corporation, the first corporation is treated as engaged in the same air transporation line of business as the second corporation. For purposes of the preceding sentence, an employee of the second corporation who is performing services for the first corporation is also treated as an employee of the first corporation.
(f) Special rule for qualified air transportation organizations. A qualified air transportation organization is treated as engaged in the line of business of providing air transportation with respect to any individual who performs services for the organization if those services are peformed primarily for persons engaged in providing air transportation, and are of a kind which (if performed on September 12, 1984) would qualify the individual for no-additional-cost services in the form of air transportation. The term “qualified air transportation organization” means any organization—
(1) If such organization (or a predecessor) was in existence on September 12, 1984,
(2) If such organization is—
(i) A tax-exempt organization under section(c)(6) whose membership is limited to entities engaged in the transportation by air of individuals or property for compensation or hire, or
(ii) Is a corporation all the stock of which is owned entirely by entities described in paragraph (f)(2)(i) of this section, and
(3) If such organization is operated in furtherance of the activities of its members or owners.
(g) Relaxation of line of business requirement. The line of business requirement may be relaxed under an elective grandfather rule provided in section 4977. For rules relating to the section 4977 election, see § 54.4977-1T.
(h) Line of business requirement does not expand benefits eligible for exclusion. The line of business requirement limits the benefits eligible for the no-additional-cost service and qualified employee discount exclusions to property or services provided by an employer to its customers in the ordinary course of the line of business of the employer in which the employee performs substantial services. The requirement is intended to ensure that employers do not offer, on a tax-free or reduced basis, property or services to employees that are not offered to the employer's customers, even if the property or services offered to the customers and the employees are within the same line of business (as defined in this section).
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Treas. Reg. §1.132-4(a)In general—(1) Applicability—(i) General rule.
In general—(1) Applicability—(i) General rule. A no-additional-cost service or a qualified employee discount provided to an employee is only available with respect to property or services that are offered for sale to customers in the ordinary course of the same line of business in which the employee receiving the property or service performs substantial services. Thus, an employee who does not perform substantial services in a particular line of business of the employer may not exclude from income under section 132 (a)(1) or (a)(2) the value of services or employee discounts received on property or services in that line of business. For rules that relax the line of business requirement, see paragraphs (b) through (g) of this section.
(ii) Property and services sold to employees rather than customers. Because the property or services must be offered for sale to customers in the ordinary course of the same line of business in which the employee performs substantial services, the line of business limitation is not satisfied if the employer's products or services are sold primarily to employees of the employer, rather than to customers. Thus, for example, an employer in the banking line of business is not considered in the variety store line of business if the employer establishes an employee store that offers variety store items for sale to the employer's employees. See § 1.132-7 for rules relating to employer-operated eating facilities, and see § 1.132-1(e) for rules relating to employer-operated on-premises athletic facilities.
(iii) Performance of substantial services in more than one line of business. An employee who performs services in more than one of the employer's lines of business may only exclude no-additional-cost services and qualified employee discounts in the lines of business in which the employee performs substantial services.
(iv) Performance of services that directly benefit more than one line of business—(A) In general. An employee who performs substantial services that directly benefit more than one line of business of an employer is treated as performing substantial services in all such line of business. For example, an employee who maintains accounting records for an employer's three lines of business may receive qualified employee discounts in all three lines of business. Similarly, if an employee of a minor line of business of an employer that is significantly interrelated with a major line of business of the employer performs substantial services that directly benefit both the major and the minor lines of business, the employee is treated as performing substantial services for both the major and the minor lines of business.
(B) Examples. The rules provided in this paragraph (a)(1)(iv) are illustrated by the following examples:
(2) Definition—(i) In general. An employer's line of business is determined by reference to the Enterprise Standard Industrial Classification Manual (ESIC Manual) prepared by the Statistical Policy Division of the U.S. Office of Management and Budget. An employer is considered to have more than one line of business if the employer offers for sale to customers property or services in more than one two-digit code classification referred to in the ESIC Manual.
(ii) Examples. Examples of two-digit classifications are general retail merchandise stores; hotels and other lodging places; auto repair, services, and garages; and food stores.
(3) Aggregation of two-digit classifications. If, pursuant to paragraph (a)(2) of this section, an employer has more than one line of business, such lines of business will be treated as a single line of business where and to the extent that one or more of the following aggregation rules apply:
36 Citing Cases
Neither Sean nor Jessica was under the age of 19 in 2016,9 and therefore, no matter what their relationship is to the Mihaliks, they cannot qualify as “dependents” under section 152(c) (or, necessarily, as “dependent children” under section 132(h)). To prevail against the Commissioner’s motion, the Mihaliks must show that Sean and Jessica qualified as their dependent children under section 132(h) in 2016. But the Mihaliks do not dispute the Commissioner’s showing that Sean and Jessica were not t
177, 181 (1945), any fringe benefit is taxable unless “excluded by § 132 or some other explicit exclusionary rule,” Boris I.
§ 1.132-5(a)(1)(v) and (vi), and were excludable from wages under Code section 132.R We hope that in consideration ofthese hazards oflitigation, you will work with us to reach a settlement in this Appeal.
Accordingly, we hold that the away city hotels constituted part ofthe Bruins' business premises for the years in issue.
The remedy ofreformation is an equitable remedy.¹8 A suit to reform a contract can be brought in the Texas district courts, which are general-jurisdiction trial courts with both legal and equitable powers. Tex. Jur. 3d, Cancellation and Reformation, sec. 132 (1980) ("Reformation may be sought in the district court."); Dubai Petroleum Co. v. Kazi, 12 S.W.3d 71, 75 (Tex. 2000) (generaljurisdiction); Texas Gov't Code sec. 24.008 (West 2004) (legal and equitable powers). Reformation can be the princ
TX Section 132 thereof, Certain Procedural Aspects ofPreparing Returns, concerns, in part, the applicable standards for CPAs concerning the obligation to verify certain supporting data. In pertinent part, TX Section 132 states: .02 In preparing or signing a return, the CPA may in good faith rely without verification upon information furnished by the c
TX Section 132 thereof, Certain Procedural Aspects of Preparing Returns, concerns, in part, the applicable standards for CPAs concerning the obligation to verify certain supporting data. In pertinent part, TX Section 132 states: .02 In preparing or signing a return, the CPA may in good faith rely without verification upon information furnished by the
Consequently, any amounts petitioner received as reimbursement therefor would not be excludable under section 132, and such amounts could not be part of an accountable plan and would not be excludable under section 1.62-2(c)(4), Income Tax Regs.
plans are excluded from gross income as working condition fringe benefits under sec. 132(a)(3) and (d). See sec. 1.62-1T(e)(5), Temporary Income Tax Regs., 53 Fed. Reg. 9874 (Mar. 28, 1988). The regulations on working condition fringe benefits under sec. 132 track the requirements of the accountable plan regulations under sec. 62(c), providing that a cash payment made by an employer will not qualify as a working condition fringe benefit unless the employer requires the employee to use the paymen
plans are excluded from gross income as working condition fringe benefits under sec. 132(a)(3) and (d). See sec. 1.62-lT(e)(5), Temporary Income Tax Regs., 53 Fed. Reg. 9874 (Mar. 28, 1988). The regulations on working condition fringe benefits under sec. 132 track the requirements of the accountable plan regulations under sec. 62(c), providing that a cash payment made by an employer will not qualify as a working condition fringe benefit unless the employer requires the employee to use the paymen
at “A fringe benefit provided in connection with the performance of services shall be considered to have been provided as compensation for services.” (Emphasis added.) The regulations applicable to the years in issue recognize that employer-provided meals or meal allowances are taxable fringe benefits unless specifically excluded from income under section 132.10 Section 1.132-6T, Temporary Income Tax Regs., 50 Fed.
and (B), and (5)(i), Income Tax Regs. - 18 - If Deborah’s argument is that she is entitled to exclude a portion of the annual lease value of the automobile from her gross income, as we interpret it to be, her argument would appear to be grounded in section 132. Section 132 provides that gross income does not include any fringe benefit that qualifies as a working condition fringe. Sec. 132(a)(3). A working condition fringe is defined as “any property * * * provided to an employee of the employer
and (B), and (5)(i), Income Tax Regs. - 18 - If Deborah’s argument is that she is entitled to exclude a portion of the annual lease value of the automobile from her gross income, as we interpret it to be, her argument would appear to be grounded in section 132. Section 132 provides that gross income does not include any fringe benefit that qualifies as a working condition fringe. Sec. 132(a)(3). A working condition fringe is defined as “any property * * * provided to an employee of the employer
have been provided as compensation for services.” (Emphasis added.) The regulations applicable to the years in issue recognize that employer-provided meals or meal allowances are taxable fringe benefits unless specifically excluded from income under section 132. Section 1.132-6T, Temporary Income Tax Regs., 50 Fed. Reg. 52308 (Dec. 23, 1985), recognizes that meals or meal allowances to employees (for meals not otherwise deductible under section 162(a)(2)) are generally considered to be taxable i
to address this issue in light of our holding. 6Holland America has not argued that sec. 274(n) applies, and Mr. and Mrs. Dobbe have not argued that the reimbursement they received for the cost of their groceries is excluded from their income under sec. 132 as a “de minimis fringe” benefit. See Boyd Gaming Corp. v. Commissioner, 177 F.3d 1096 (9th Cir. 1999), revg. T.C. Memo. 1997-445. - 22 - Generally, meal expenditures are treated as personal expenses and are not deductible for Federal income
Second, we analyze petitioners' reasons for furnishing the meals 4(...continued) any expense if-- * * * * * * * (B) in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes), 5 Sec.
e, according to petitioners, a deductible expense should include any expenditure made "in the form of money, property, or services." Petitioners support their contention that the value of services is deductible under section 162 by noting that under section 132, an employee is not entitled to exclude from gross income a fringe benefit consisting of a service provided by his or her employer unless the fringe benefit qualifies as a "no-additional-cost service", as defined by section 132(b).
In short, section 274(n)(2) will allow petitioners to deduct the entire cost of their employee meals if the meals are a de minimis fringe benefit under section 132(e). Thus, petitioners may deduct the meals’ full cost if they reasonably determine that the meals are excludable from their employees’ incomes under section 119. Sec. 1.132-7(a)(2), Income Tax Regs.12 To the extent that respondent believes that the de minimis fringe benefit exception is inapplicable because the meals were furnished fr
— Paragraph (1) shall not apply to any expense if— (A) such expense is described in paragraph * * * (g) * * * of subsection (e).[] (B) in the case of an expense for food or beverages, such expense is excludable from the gross income of the recipient under section 132 by reason of subsection (e) thereof (relating to de minimis fringes), From this text, we find that the mandate of the Congress is clear.