In Uncategorized on 04/13/2022 at 15:52

IRS says no to the adult children of Douglas Mihalik and Wendi J. Mihalik, T. C. Memo. 2022-36, filed 4/13/22. Doug is a retired airline pilot; part of his package is free stand-by passes for himself, family and “friends.” His former employer tracks those passes, and labels each recipient as family or friend. The former employer assigns a cash value to each pass issued to one other than spouse or dependent child of former employee, and gives the former employee a 1099-MISC for the aggregate at no extra charge.

Doug and Wendi report nada. So IRS hands them a SNOD, which they petition.

Doug and Wendi are less than clear about the application of Section 132 de minimis fringes. These are low-cost (too small to consider) or no-additional-cost-to-employer (past or present).

IRS moves for summary J. Doug and Wendi don’t prepare for trial, allege some protester jive, and claim they moved for discovery, but the motion didn’t make it into the record. Anyway, what they claimed they asked for had no bearing on the case.

Judge David Gustafson sorts it out.

“Section 132(a)(1) excludes from gross income the value of any fringe benefit that qualifies as a ‘no-additional-cost service’. As defined in section 132(b), a ‘no-additional-cost service’ is any service that is  (1) provided by an employer to an employee, (2) at no substantial additional cost to the employer (including forgone revenue), (3) for use by the employee, and (4) offered for sale to customers in the ordinary course of business of the employer. See also Treas. Reg. § 1.132-2(a)(1).  Excess capacity services, such as stand-by flights provided by commercial airlines to their employees, are generally considered no-additional-cost services and are non-taxable to the recipients.” T. C. Memo. 2022-36, at p. 7. (Footnote omitted, but it says fringe stand-bys only go if no revenue passenger shows, so the airline loses nothing as the plane was going anyway).

So Doug and Wendi and daughter are OK, as Section 132(h) limits the no-additional-cost fringes to employee, spouse and dependent (per Section 152) children. But  the two free-fliers, though having same surname as Doug and Wendi, are nowhere proven to be among the Chosen Few.

They’re not shown as dependents on Doug’s and Wendi’s tax return for year at issue, and IRS says their ages make them too old for dependent child status.

As for de minimis cash benefits, these are almost never tax-free.

“Examples of excludable de minimis fringe benefits include coffee, doughnuts, and soft drinks, local telephone calls, and occasional personal use of an employer’s copy machine.  Examples of benefits that are not excludable de minimis fringes are: season tickets to sporting or theatrical events, the commuting use of an employer-provided automobile or other vehicle more than one day a month, and use of employer-owned or leased facilities (such as an apartment, hunting lodge, boat, etc.) for a weekend.” T. C. Memo. 2022-36, at p. 8. (Citations omitted).

And the fringes aren’t so small that it would be burdensome to track; Doug’s former employer does a grand job of tracking.


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