At Issue
When “gifts” are sent to employees of your school for grievances or holidays – for example – what would cause you to be required to include the value of those in the receiving employee’s compensation and reported on Form W-2?
Situation
Tami, the Administrative Assistant for the accounting team at Troas Bible College (TBC) had her mother pass away this week after a prolonged illness. TBC sent Tami’s family an arrangement of flowers that cost $68. Gwen, their CFO, calls us and asks if they must include the value of the flowers in Tami’s W-2.
We tell her that, generally, under I.R.C. section 132(e) the flowers should be a de minimis fringe benefit and excludable from her income. The value of the flowers at $68 may be a “gray area” (see below**). Also, it would appear the cost of the flowers might be included on TBC’s Form 990, Part IX, Line 9 as an “other employee benefit”.
Rules
From Treasury Regulation 1.132-6(e)(1):
Benefits excludable from income. Examples of de minimis fringe benefits are occasional typing of personal letters by a company secretary; occasional personal use of an employer’s copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85 percent of the use of the machine is for business purposes; occasional cocktail parties, group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis). [Underline added.]
Under Revenue Ruling 59-58 (and other guidance), if, as a means of promoting goodwill, an employer makes a general distribution of hams, turkeys or other items of merchandise of nominal value at Christmas or other comparable holiday, the value of the gifts is not included in the income of the employees. However, if the employer distributes cash, or gift certificates or similar items of readily convertible cash value, the cash or value of such gifts is additional wages or salary, regardless the amount or value.
**So, there is a question of how much might be the threshold in 2015 for a “low fair market value”. It would be easy to use the IRS’ “business gift” limit of $25, but that amount has not been inflation-adjusted for several decades. For the fun of it, there is a case in this vein from 1961 (the “Hallmark Cards” case) where $25 “gift certificates” were provided to employees and found to be “of small value relative to the earnings of taxpayer’s employees. Taxpayer intended these certificates to be gifts.” We went online to the “US Inflation Calculator” and ran $25 from 1961 to 2015. The result was $198.95. Okay, that may be a little high for “low fair market value”. Another thought is that the IRS does not require receipts for expenses (except lodging) that are less than $75 – maybe that would be a reasonable threshold…
Bottom Line
There are numerous misconceptions when it comes to employee gifts. We’ve covered gift cards for birthdays in an earlier edition of “TTCHE”. However, you should be careful to document the reasonableness of “excludable benefits”. You do not want to include amounts in an employee’s W-2 if you don’t have to. One thing we know – there are “uniquenesses” involved in every situation. Check with you tax advisors for clarification.
Specific questions? Email Dave Moja
The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.