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Fringe Benefits Employer-Provided Meals and Lodging [§ 119] o Meals [RULE:] employees can exclude from income the value of employer- provided meals if the employer furnishes meals to an employee, her spouse, or her dependents; the meals are provided for the convenience of the employer; and the meals are provided on the business premises of the employer. o Lodging [RULE:] employees can exclude from income the value of employer- provided lodging if it is furnished on the business premises by the employer to an employee, her spouse, or her dependents; it is provided for the convenience of the employer; and the employee is required to accept the lodging as a condition of her employment. o Terms dependent [§ 152]—any US citizen who resides with the taxpayer and who either receives a majority of her support from the taxpayer, or is treated under the special rules of § 152 (c)-(e) as having received over half her support from the taxpayer. furnishing— employee must be constrained in her choice of food or eating places. business premises— employer— BENAGLIA V. COMMISSIONER (1937)—the manager of a luxury hotel in Hawaii was permitted to exclude the value of meals and lodging provided at the hotel because the manager was required to be on duty continuously. Although the meals and loding provided were quite valuable, the court concluded that the meals and lodging were provided so that the manger could perform his duties, not as additional compensation. Employer-Provided Insurance and Health, Accident, and Death Benefits o § 79 [RULE:] employees can exclude the value of insurance from gross income to the extent that the insurance provides death benefits not greater than $50,000. Note: Employer cannot discriminate in favor of highly compensated employees. o § 105 [RULE:] the following are excluded from gross income: amounts employees received from employers as reimbursement for medical expenses; and the value of services employees receive under an employer- provided health care plan. o § 106 [RULE:] the value of health and accident insurance premiums paid by the employer to cover employees is excluded from gross income. o § 213 [RULE:] unreimubrsed medical expenses are deductions. subject to limitations (e.g., a floor of 7.5% of AGI) Exclusion of Miscellaneous Fringe Benefits [§ 132] o Categories of Excluded Benefits No Discrimination: Benefit has to be no-additional-cost services made available to a wide cross section qualified employee discounts of employees, working condition fringe benefits including non- highly compensated de minimis fringe benefits employees. qualified transportation fringe benefits qualified moving expense reimbursements qualified retirement planning services qualified military base realignment and closure fringe. o No-Additional-Cost Service [§ 132(b)] ELEMENTS: (1) the service is offered for sale in the ordinary course of the line of business of employer in which the employee is performing services (2) the benefit imposes no substantial additional cost on the employer [EX:] a hotel could allow employees free use of otherwise unused hotel rooms. A manufacturing company could not offer its employees hotel rooms it was not using but for which it paid. o Employee Discount [§ 132(c)] GOODS: an employee purchasing goods can exclude a discount up to the employer’s gross profit percentage. [DEF:] the term gross profit percentage is determined as follows: o [aggregate price – aggregate cost] / aggregate price [hypo:] if an employer sold goods for an aggregate sale price of $100,000 and the employer’s aggregate cost of the goods is $60,000, the employer’s gross profit percentage is 40%, which is $40,000 ($100K aggregate price minus $60K aggregate cost) divided by the $100K aggregate price. The employer could offer its employees tax-free discounts of up to 40%. SERVICES: an employee purchasing services can exclude a discount up to 20% of the price at which the services are being offered by the employer to customers. [RULE:] the exclusion for qualified employee discounts is limited to goods or services sold in the line of business in which the employee is providing services. Imputed Income Generally o [DEF:] cannot be consumed when used (e.g., food) o Competing Policy: Why not to tax… problems of valuation and liquidity do we really want a system that monitors imputed activities? Why tax… Equity and efficiency problems otherwise people will be encouraged to provide services in the home rather than accept formal jobs outside the home. o The non-taxation of imputed income does not depend on the existence of a statutory exclusion. o Examples of Imputed Income: Ownership of a home a tuxedo an automobile Driving oneself to work Filling out a tax return without the aid of an accountant o Ways of Taxing Imputed Income Calculate rental value (e.g., of home, automobile) and tax on that amount Levying excise taxes on leisure-related goods or activities More realistically: allow individuals who accept jobs paying taxable wages to deduct the cost of obtaining household services [hypo:] if Xavier earns $12 per hour, $10 of which goes to pay for child care and cleaning services, the Xavier would have a gross income of $12/hr, offset by a deduction of $10/hr, for a taxable income of $2/hr. Money used to pay for household services would be free. Windfalls, gifts, scholarships, prizes, and transfer payments Windfalls o [RULE:] taxpayers must include in income any windfalls they receive. COMMISSIONER V. GLENSHAW G LASS (1955)—Held that Glenshaw Glass had to include in its gross income punitive damages it received in settlement of an antitrust lawsuit. Income includes any undeniable accessions to wealth, clearly realized, and over which the taxpayers have dominion and control. CESARINI V. UNITED STATES (1970)—Cesarini (∏) bought an old piano for $15 at an auction and later discovered almost $4500 in cash hidden in the piano. The court held that the cash was income to the taxpayer in the year in which they found it. A taxpayer must include the value of “treasure trove” in income in the year in which the taxpayer discovers it and reduces it to possession.1 1 Note: distinguish this from the case where the taxpayer later discovers that the piano is worth $4500. In such a case, there is no income inclusion until the property was sold or exchange (i.e., until the gain was realized).
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