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A county pays meal money allowances, including lunch and dinner, for its ballot clerks. They are not required to eat their meals on the premises and usually go to a local restaurant. Are these payments taxable?
The facts indicate that the allowances are taxable. Section 62(a) of the Code provides that gross income means all income from whatever source derived, including fringe benefits. There is no exclusion that applies to a fringe benefit of this type. There is no contention that the meals are provided on the business premises for the convenience of the employer. . Cash cannot be excludable, except as a de minimis benefit under very limited circumstances as outlined in Regulation 1.132-6(d)(2). Regular meal money does not qualify for the exclusion. The exclusion for meal money must meet three criteria: it is provided (1) on an occasional basis, (2) because overtime work necessitates the extension of the employee's normal work schedule, and (3) to enable the employee to work overtime.
The meal money in this case is provided on a routine basis and is not excludable from income.
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A town has a public safety director who is a retired police chief. He carries a firearm and has arrest powers. He drives a regular unmarked vehicle and commutes in this vehicle from home to the office. Is he entitled to exclude the value of the use of the car from his income?
As a general rule, the use of an employer-owned car by an employee results in taxable income.
Section 132(a)(3) of the Code allows an exclusion for a working condition fringe. A working condition fringe is any property or services provided to an employee by an employer to the extent that, if the employee paid for the property or services, the payment would be allowable as a deduction under section 162 or 167.
The value of a "qualified nonpersonal use vehicle" can be excluded from income as a working condition fringe if the use of the vehicle conforms to the requirements of paragraphs (k)(3) through (7) of section 1.274-5T of the regulations. An employee does not have to substantiate the business use of a nonpersonal use vehicle in order to exclude its value from income.
A qualified nonpersonal use vehicle means any vehicle that is not likely to be used more than a minimal amount for personal purposes. Common examples include a fire engine, a clearly marked police or fire vehicle, a flatbed truck, school bus, ambulance, etc.
There are limited circumstances under which an unmarked police car qualifies as a nonpersonal use vehicle. First, the driver must be a "law enforcement officer." A law enforcement officer must satisfy all of the following requirements. He or she must be a full-time employee of a governmental unit that is responsible for preventing or investigating crimes involving injury to persons or property (including catching or detaining persons for these crimes). The officer must be authorized by law to carry firearms, execute search warrants, and to make arrests. The officer must regularly carry firearms, except when it is not possible to do so because of the requirements of undercover work. A “public safety director,” or any employee, regardless of title, must meet these tests to qualify under this exclusion.
Second, any personal use of the vehicle must be authorized by the government agency or department that owns or leases the vehicle and employs the officer, and, third, the use must be incident to law-enforcement functions, such as being able to report directly from home to a stakeout or surveillance site, or to an emergency situation. Use of an unmarked vehicle for vacation or recreation trips cannot qualify as an authorized use.
Whether the individual's use of the vehicle is authorized by the governmental agency which employs him or whether the use is incident to law-enforcement functions depends on the facts and circumstances. If the individual is allowed to use the vehicle as a courtesy and for commuting purposes, it does not qualify as a nonpersonal use vehicle, and the commuting value is income subject to FICA and income tax withholding.
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For purposes of defining a qualified nonpersonal use vehicle, what qualifies as a clearly marked police or fire vehicle?
A police or fire vehicle is clearly marked if it has insignia or words which make it clear that it is a police or fire vehicle. A marking on a license plate is not a clear marking for this purpose.
According to the regulations, the exclusion for a clearly marked police or fire vehicle applies only to a vehicle that is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times. Other than commuting, personal use of the vehicle, outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency, must be prohibited by the governmental unit.
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A town provides cars that its officials and other employees use during the workday for business purposes. These employees also use the cars for commuting to and from work. Is the use of these vehicles for commuting taxable income to the employees?
The value of noncash fringe benefits is taxable income to the recipient. Thus the commuting value of a vehicle owned or leased by a public entity usually represents taxable income to the employee.
One exception is for the qualified nonpersonal use vehicle, described above. Thus, for example, when a law enforcement officer drives a clearly marked police car to his or her residence when off duty and otherwise satisfies the requirements described above, the commuting value of that vehicle is not income to the employee.
There are several ways to value the commuting use of a car for income and FICA tax purposes: the cents-per-mile rule, the lease value rule, and the commuting rule. Under the cents-per-mile rule, the value of the use of a car is the standard mileage rate (48.5 cents per mile in 2007) multiplied by the number of personal miles driven. Under the lease value rule, the value of the use of the car is the annual lease value (in the regulations) less the amount of use which would be a working condition fringe to the employee. See section 1.61-21(d)(2), Income Tax Regulations, which also discusses this valuation method in detail. To qualify as a working condition fringe, the business use must be deductible as a business expense by the employee. This means that the employee must keep a log to account for the business miles driven. More information about these methods can be found in Publication 15-B, Employer's Tax Guide to Fringe Benefits.
Under limited circumstances, the "commuting rule" can be used to determine the commuting value of a car. Under this rule, the employer determines the commuting value by multiplying each one-way commute (from home to work or from work to home) by $1.50. If more than one employee commutes in the vehicle, this value applies to each employee. The employer must meet all the following requirements:
1. The employer owns or leases the vehicle and provides it to one or more employees for business use.
2. For bona fide noncompensatory business reasons, the employee is required to commute in the vehicle. The employer is treated as meeting this requirement if the vehicle is generally used each workday to carry at least three employees to and from work in an employer-sponsored commuting pool.
3. The employer establishes a written policy under which the employee is not allowed to use the vehicle for personal purposes, other than for commuting or de minimis personal use (such as a stop for a personal errand on the way between a business delivery and the employee's home).
4. The employee does not use the vehicle for personal purposes, other than commuting and de minimis personal use.
5. If this vehicle is an automobile, the employee who must use it for commuting is not a control employee. An elected official is always a control employee. (For tax year 2007, a control employee of a government employer is an elected official or one whose compensation is $136,200 or more for the year.)
The term "bona fide noncompensatory business reason" means that the employee must be required to commute in the vehicle for the benefit of the employer, not for the benefit of the employee. Examples include the following:
- The employee was driving a van in an employer-sponsored carpool.
- The car, though unmarked, was outfitted with communications or other equipment the employee would need if on call 24 hours a day.
- The unavailability of parking at the workplace.
- An employee in the field, who would otherwise have to return to the workplace before going home, might be able to work longer if allowed to commute in an employer-provided vehicle. It is not enough for the employer to simply state that it requires employees to commute in employer-owned vehicles.
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Can an appointed executive or official have a portion of his salary paid to him as reimbursement for mileage, phone calls, etc., and the balance as salary subject to FICA and withholding?
To be excluded from wages, reimbursements must be for actual documented expenses under an accountable plan, i.e., a reimbursement or other expense allowance arrangement set up by the employer. Code section 62(c) and section 1.62-2.
To qualify as a reimbursement or other expense allowance arrangement, the arrangement must require (1) that the employee substantiate all expenses to the employer, and (2) that the employee return any amount in excess of substantiated expenses. An expense should be substantiated within 60 days after it is paid. If the individual receives an advance, any money not accounted for must be returned within 120 days. See section 1.62-2(g) of the Income Tax Regulations, defining a "reasonable period" for purpose of this section.
To substantiate the expense, the employee must document the amount, time and place of travel, the business purpose, and the business relationship to the taxpayer of the people involved if the expense is for entertainment. Miscellaneous expenses must also be documented. In other words, the substantiation requirement involves furnishing the employer a detailed breakdown of expenses and providing receipts. The employee must be required to document business expenses, must be required to return any portion of an advance that is requirements.
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A fire chief uses his own pickup truck for work. He accounts for the business use of his truck and is reimbursed for his mileage. He sometimes travels to and from the fire station outside of his regular work schedule. Is this considered commuting and would reimbursement be taxable?
This travel is commuting and is a personal expense. It does not matter whether the fire chief is commuting outside of his regular work schedule. Any reimbursement for commuting in his own vehicle is taxable to the employee.
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