Answered Essay: Consider whether or to what extent the fringe benefits listed below may be excluded from gross income and, and where possib

Consider whether or to what extent the fringe benefits listed below may be excluded from gross income and, and where possible, support your conclusions with the statute authority:

(a) Employee of a national hotel chain stay in one of the chain’s hotels in another town rent free while on vacation. The hotel has several empty rooms.

(b) Same as (a) above, except that the desk clerk bounces a paying guest so Employee can stay rent free. See Reg. 1.132-2(a)(2) and (5).

(c) Same as (a) above, except that Employee pays the bill and receives a cash rebate from the chain. See Reg. 1.132-2(a)(3).

(d) Same as (a) above, except that Employee’s spouse and dependent children traveling without Employee use the room on their vacation.

(e) Same as (a) above, except the Employee stays in the hotel of a rival chain under a written reciprocal agreement under which employees pay 50% of the normal rent.

(f) Same as (a) above, except that Employee is an officer in the hotel chain and rent free use is provided only to officers of the chain and all other employees pay 60% of the normal rent. See Reg. 1.132-8(a)(2)(i).

(g) Hotel chain is owned by a conglomerate which also owns a shipping line. The facts are the same as in (a) above, except that Employee works for the shipping line.

(h) Same as (g) above, except that Employee is comptroller of the conglomerate. See Reg. 1.132-4(a)(1)(iv).

Expert Answer

 

  1. Employee of a national hotel chain stay in one of the chain’s hotels in another town rent free while on vacation. The hotel has several empty rooms.

Answer:

Excludable from gross income.

The room used was already empty, so there’s no foregone revenue (see § 132(b)).

132(a) (1) – this is a no additional cost service to the hotel, and is therefore not taxable

  1. Same as (a) above, except that the desk clerk bounces a paying guest so Employee can stay rent free. See Reg. 1.132-2(a) (2) and (5).

Answer:

Excludable from gross income.

132(c)(1) – Qualified Employee Discount; the employee gets 20% qualified employee discount, but must then pay tax on 80% of the value of the room.

Here, there is foregone revenue. Not excludable under no-additional cost services.

  1. Same as (a) above, except that Employee pays the bill and receives a cash rebate from the chain. See Reg. 1.132-2(a) (3).

Answer:

Excludable from gross income.

                Cash rebates are excluded – Reg. §1.132-2(a) (3)

Cash rebates are an accession to wealth. Not excludable under no-additional cost services. However, see qualified employee discount:

1. Hotel room = in the line of business.

2. Qualified employee.

Because of the 20% limitation, assuming the cost of the room is $100, then employee can exclude up to $20, but the other $80 are gross income.

  1. Same as (a) above, except that Employee’s spouse and dependent children traveling without Employee use the room on their vacation.

Answer:

Excludable from gross income.

Definition of employee is extended to spouse and dependent children (see § 132(h))

Still excluded – 132(h) (2) – for purposes of subsections (a) (1) and (2) – employee includes spouse and dependent children (for airlines, add parents – 132(h) (3))

  1. Same as (a) above, except the Employee stays in the hotel of a rival chain under a written reciprocal agreement under which employees pay 50% of the normal rent.

Answer:

Excludable from gross income.

                Excluded – 132(a) (1) – (132(i) reciprocal agreements apply to 132(a) (1))

 

  1. Same as (a) above, except that Employee is an officer in the hotel chain and rent free use is provided only to officers of the chain and all other employees pay 60% of the normal rent. See Reg. 1.132-8(a)(2)(i)

Answer:

Officers are clearly being treated better than general employees.

1.132-8(d) (2): This is not per se discriminatory because it’s based on employee rank. Have to examine facts further.

This is likely a discriminatory plan. Highly compensated employees cannot use this exclusion at all. However, the general employees can still use it.

The value of the free room is included under 132(j) (1) as income for the officers. The employees, however, get 40% of the room tax free. The reason for this “punishment” given by the tax code to the officers is because their fringe benefit policy is discriminatory to lower paid workers.

The tax punishment is an incentive to the company to equalize its fringe benefits among all employees.

  1. Hotel chain is owned by a conglomerate which also owns a shipping line. The facts are the same as in (a) above, except that Employee works for the shipping line.

Answer:

Not excludable from gross income.

Line of business test: employee works for the shipping line, NOT the hotel services.

  1. Same as (g) above, except that Employee is comptroller of the conglomerate. See Reg. 1.132-4(a) (1) (IV).

Answer:

Excludable from gross income.

As comptroller, he is likely considered to be in both lines of business (see 1.132(4) (1) (IV)).

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