FROM THE OFFICE OF PUBLIC AFFAIRS
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October 1, 2004
js-1974
Treasury and IRS Issue Ruling To Halt Abusive Employment Tax Arrangements Involving Employee Parking
Today Treasury and the IRS issued guidance to shut down an abusive employment tax arrangement involving double employer reimbursements for an employee's parking expenses. The ruling clarifies that employer reimbursements for parking are not excludible from income and wages for employment tax purposes where the parking has already been paid for by the employee on a pre-tax basis (such as by salary reduction elections by employees). This ruling will not affect regular arrangements between employers and their employees that provide qualified parking benefits.
Generally, employer-provided qualified parking benefits, including employer reimbursements of qualified parking expenses paid by an employee, are excluded from income and wages for employment tax purposes. Where the parking is provided pre-tax, however, employers cannot then exclude the amounts twice by treating payments to the same employees as excludible reimbursements for parking.
"This is a classic 'double-dip' arrangement that recently has come to our attention," stated Acting Assistant Secretary for Tax Policy Greg Jenner. "Treasury and IRS have acted promptly to shut it down, enabling responsible taxpayers and their advisors to stay away from such double-dip arrangements in the future."
The ruling explains that since pre-tax parking is provided by the employer, and not the employee, there is no expense by the employee that can be reimbursed with excludible funds. Further, the ruling states that the position that such payments are excludible reimbursements of qualified parking expenses is meritless.
As described in the ruling, the arrangement could be invisible to the employee, whose take home pay remains unchanged. The ruling notes that the payments remain taxable whether or not the payments are calculated to provide employees with the same net pay. The holding also states that it applies with respect to other double-dip arrangements involving attempts to exclude alleged reimbursements of the cost of nontaxable benefits which are provided by employers on a pre-tax basis.
The text of Revenue Ruling 2004-98 is attached.
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