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