Issue

There always seems to be confusion around the arena of “allowable” fringe benefits for employees. The IRS has just released an updated version of Publication 15=B, Employer’s Tax Guide to Fringe Benefits. The new guide includes examples of de minimis (non-taxable) fringe benefits and lists some examples of benefits that are taxable.

Situation

Denali Christian College (DCC) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii). They are required to file Form 990 annually. Their CFO called us to ask about limits on providing birthday flowers for employees. He asked, “Would a $80 flower arrangement for an employee’s birthday be taxable?”

We told him that the IRS prescribes gifts – not cash (or gift cards) – with a low fair market value would be a non-taxable fringe. The trick? What is “low”? If we go back to the 1960’a Hallmark Cards case and adjust for inflation, that amount could be around $200 today. However, the “business gifts” limit remains $25. We suggest that a nice/standard flower arrangement provided on a consistent basis from employee to employee would generally be reasonable.

Rules

From IRS Publication 15-B (New):

De Minimis (Minimal) Benefits

You can exclude the value of a de minimis benefit you provide to an employee from the employee’s wages. A de minimis benefit is any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable. Cash and cash equivalent fringe benefits (for example, gift certificates, gift cards, and the use of a charge card, or credit card), no matter how little, are never excludable as a de minimis benefit. However, meal money and local transportation fare, if pro-vided on an occasional basis and because of overtime work, may be excluded as discussed later.

One example is:

Holiday or birthday gifts, other than cash, with a low fair market value. Also, flowers or fruit or similar items provided to employees under special circumstances (for example, on account of illness, a family crisis, or outstanding performance).

 

Bottom Line

Fringe benefits continue to be a tough issue to navigate. The new version of IRS Publication 15-B can be a good resource to help your team with these decisions. Checking with your tax advisor is another good choice. Always ensure that you are getting counsel from a knowledgeable, enthusiastic advocate. He or she will be able to help you develop a set of post-issuance compliance procedures that will ensure that your school is operating within IRS rules.

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.