Excl's from Income: Fringe Benefits, Imputed Income, Gifts, State & Local Bonds, Cert. Canceled Debt, Ins., & Pers'al Phys'al Inj.

Fringe Benefits 4 Ee's

  1. Factors
    1. History & expectation
    2. Soc'al welfare policy
    3. Lack of choice & fairness
    4. Adm. / valuation prob.
    5. Nec. 2 do job
  2. Three Gen. Types
    1. Soc'al welfare
    2. Noncompensatory & work rel'ed
    3. Jackpot fringe benefit
  3. Nondiscrim. Rule
    1. Excl. avail. 2 all ee's, not just high earners
    2. Most soc'al welfare & jackpot should B nondiscrim. but not work rel'ed
  4. Code v. No Code
    1. Code sections 4 esp'ly soc. welfare but some excl. just by history
  5. Fringe Benefits in 119
    1. Meals & Lodging
      1. Er furnished
        1. Er can furnish $ & ee can shop 4 food
      2. On er's premise
        1. Temp. housing isn't on premise
      3. Er's convenience (conv.)
        1. Er has subst'l noncompensatory rsn 2 prov. meals
        2. Ok 2 have compensatory & noncomp. motives
        3. For free meals
          1. If compensation 2 have ee's around then incl. in income by Reg. 1.119-1
          2. Exception 4 food workers by history & expectation
      4. Ee req'ed 2 accept 4 lodging
        1. Must live @ lodging as nec. 4 busi. fn.
  6. Gen. Guideline of Fringe Benefits 132
    1. Applicability
      1. Not apply 2 fringe benefits w/own
      2. Apply only 2 ee's
        1. Partn's R ee's by 113 but not by 119 ct. dec's
        2. Spouse & dep. ch. of ee treated as ee by 132)h 4 no add'al cost & qualified ee discount
        3. Parents of ee treated as ee 4 air transp.
    2. Types
      1. No add'al cost serv. : 132)b
        1. Nondiscrim. rule by 132)j
        2. Serv. 4 sale 2 customers in ord. course of busi. where ee perf's +
        3. Er incurs no subst'l add'l cost 2 prov. serv. 2 ee
        4. If er 2 ee of another gives serv., treat as if own er by 132)i if
          1. Serv. prov'ed by written agmt of er's +
          2. Neither er's incur any substl add'l cost
      2. Qualified ee discount: 132)c
        1. Nondiscrim. rule by 132)j
        2. Discount not exceed gross profit % of price @ which prop. is offered by er 2 customers /
        3. For serv., 20% of price @ which it's offered 2 customers
        4. Qualified prop. / serv. R those offered 2 customers in ord. course of busi. in which ee's perf.'s serv.
      3. Working cond. fringe: 132)d
        1. Prop. / serv. 2 ee 2 extent if ee paid, deductible by 162 / 167
        2. Ex like annual retreat & ed'al prog.
      4. De minimis fringe: 132)e
        1. Any prop. / serv. 4 value that's really small
        2. Look @ adm. rsb'lity & freq. of similar fringe
        3. Spec. 4 er operated eating facility
          1. Must B located on / near er's busi. premise +
          2. Annual revenue = / exceeds dir. operating costs like food, salary, bldg space but not rent / furnish
          3. Nondiscrim. rule 4 eating facility
        4. Ex's of typing if 85% is busi. & 15% is pers'al & turkey 4 Thanksg.
      5. Qualified transportation fringe
      6. Qualified moving expense reimbursement
  7. Spec. Fringe Benefits
    1. On premise athletic facility's value excl'ed from ee's income by 132)j)4
      1. Covert nondiscrim. rule b/c deny er deduction when ee pay 4 use
    2. Free Parking
      1. By 132)f, excl'ed from GI up 2 $155 / mo.
      2. Nondiscrim. rule
      3. Can have choice btwn parking v. cash, but if cash, incl'ed in income
    3. Group Term Life Ins. Fringe by 79
      1. Er can prov. up 2 $50k of term life ins. where ee not taxed
      2. Reg. 1.79-3 chart showing cost of ins. 4 $1k / mo.
    4. Health Ins.
      1. Premiums 4 health plans excl'ed from ee's income by 106
      2. By 105)b allows deduction 4 med. expenses / 213
      3. Must use 4 med. & can't get double recov.
      4. Limited nondiscrim. rule in 105 4 self ins'ed plans where ee only pay bills & not buy
      5. Created expensive med. care sys. b/c few cost control
    5. Cafeteria Plan by 125
      1. Excl'ed from GI when ee's choose benefits 4 less income
      2. Must use up $ by end of yr.
      3. Exception 2 constructive receipt
      4. Not incl. plans 4 deferred compensation
    6. Pension Plan
      1. Two types
        1. Def'ed contrib. plan where er contrib. def'ed amt 2 indiv. acct
          1. Risk on ee
          2. Better 4 ee if change jobs a lot
        2. Def'ed benefit plan where ee's benefit def'ed 4 K'al prom.
          1. Could B eq. of (2%) (yrs served) (final / career pay)
          2. Risk on er
      2. Nondiscrim. rule
        1. Must have @ least 70% of low earning ee's of cov'ed high earning ee's by 410)b
        2. High compensated ee's R
          1. Was 5% owner
          2. Received $75k
          3. Received $50k & top paid group of ee's
      3. ERISA
        1. Fed. preemption so state can't leg. on ee benefit plan except 4 state ins. so can't reg. in health area a lot
        2. COBRA mandates er 2 cont. 2 prov. health ins. when ee leave
        3. HIPPA says new er has 2 pick up w/o preexisting cond. limit
      4. ERISA & correcting retirement tax prog.
        1. Vesting
          1. Graded, then over 7 yrs.
          2. Cliff, then 5 yr. as min.
        2. Underfunded def'ed benefit prog's
          1. Min. fund stand. by 412
          2. Pension benefit guarantee corp. is simple $ / partic. where really subsidize poorly funded plans
          3. PBGC has variable rate premium & can go after all ins. assets now
        3. Msmgt of assets
          1. Strong fid. rules make harder 2 misinvest / steal
        4. No protection of spouse
          1. Jt survivor duty 4 def'ed benefit & some def'ed contrib. plan, benefit paid 4 partic. & after death, spouse gets cont'ing life benefit 4 50% normal form of benefit
    7. Can sign waiver 2 get out of it

Imputed Income

  1. Excl'ed From Income
  2. Two Types
    1. Things U own
    2. Thing U prod. w/own labor
  3. Exch's
    1. Incl'ed in income if
      1. Seems comm'l / sell such serv's / prop. 4 living
      2. Not know each other
      3. Large values exch'ed

Gifts

  1. Excl'ed From Recipient's Income by 102
  2. Sep. Tax
    1. Not taxed up 2 $10k / person / yr. & $20k if married
    2. By unified credit, can give up 2 $600k w/o paying tax
    3. Tax donor & excl. as gift 2 donee
  3. Def. of Gift
    1. Detached disint'ed sense of generosity by affection, respect, admiration, charity / like impulse
    2. Transf's 4 specif. sex acts not gifts but if 4 gen. rel., then gifts
    3. Probably not incl. tips b/c part of job
  4. Busi. Gifts
    1. Could give 2 ee's by 102)c
    2. Can deduct $25 / person / yr. by 274)b

Tax Exempt Income From State & Local Bonds: 103

  1. No Tax Arbitrage by 265
  2. Issuing Bonds
    1. Limited Exemption Status
      1. Can issue 4 govt activities / rsbl rel. 2 govt fn.
      2. Small issue bonds 4 busi. only 2 extent multiple # of people 2 $50 / min. of $150 mill.
    2. Tax Arbitrage Bonds Not Allowed by 148
      1. If return amt & borrowing rate 2 dif., tax arbitrage & no longer exempt

Cert. Canceled Debt

  1. Excl. Cancellation of Indebtedness Income by 108
    1. Reqts
      1. Excl. if discharge 4 title 11, T insolvent, qualified farm indebtedness, / qualified real prop. busi. indebtedness
      2. Insolvent T if excess of liab. over fair mkt value of assets by 108)d)3 based on assets & liab. imm'ly before discharge
      3. Indebtedness is 4 which T is liab. / subj. 2 which T holds prop. by 108)d)1 but only applies 2 108
    2. Reduce Good Tax Attributes 108)b
      1. Net operating loss
      2. Basis reduction
  2. Purchase Price Adj. Instead of Canceled Debt 108)e)5
    1. Reqt's
      1. Purchase $ debt reduction 4 solvent debtor is price reduction if debt rose btwn buyer & seller 4 buying the prop +
      2. Not reduce b/c of title 11 / buyer insolvent +
    2. Rebuttable Presumption
  3. No Income 4 Cancelling School Loan by 108)f
    1. Reqts
      1. If loan made by US / state /
      2. Pub. benefit corp. /
      3. Ed'al org. persuant 2 agmt w/ above entities
    2. Any Canceled Loan 4 Pub. Serv. Work

Life Ins. & Ins. Proceeds

  1. Whole Life Ins.
    1. Pure life ins.
    2. Savings acct
  2. Excl. Ins. Proceeds From Income 101)a)1
    1. For whole life ins., excl's savings acct's int. as well
    2. If cash ins. & get savings, then basis det'ed by premium paid
    3. B /c of tax benefits, 7702 def. life ins. w/low savings
  3. Accelerated Death Benefits of Life Ins.: 101)g
    1. Treat as ins. proceeds & excl.
    2. If meet stand., then could excl. if come from 3rd party also
    3. Chronically ill pat's can treat payment as proceeds if $ 4 long term care

Pers'al Phys'al Inj. / Sickness Damage 104)a)2

  1. Only Damage 2 B Excl'ed
  2. Gen'ly Excl'ed Except
    1. If permitted 2 B inj'ed, then income
    2. Emotional distress gen'ly not pers'al inj. unless amt of damages not exceed amt paid 4 med. care of 213)d)1)A / B

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December 8, 1997

Ms. Haeji Hong 1