Fringe Benefit Teleconference Series Part I: Working Condition Fringe Benefit Exclusion under Code Section 132(d)


Miller & Chevalier held an invitation-only teleconference to provide an overview on the application of Code section 132(d), and discussed some of the issues that IRS auditors routinely target, such as: travel benefits and per diems; the personal use of company cars and planes; spousal travel; and, club dues.

Earlier this year, we alerted our clients regarding the IRS's announcement that it will audit 6,000 U.S. companies to determine whether they pay all their required employment taxes to fund Social Security and Medicare benefits. The IRS indicated that the primary focus of the National Research Program Initiative (NRP) examinations will be worker classification (i.e., whether service providers are being properly classified as independent contractors) and the tax treatment of fringe benefits. John Tuzynski, chief of employment tax operations at the IRS, also noted that the IRS will focus in particular on fringe benefits such as company cars and the personal use of corporate-owned vacation property. The audits will occur over a three-year period and the companies will be chosen at random. The first round of the NRP audits have begun, and the IRS has indicated that the second round of audit letters will be sent out this fall.

The IRS will consider a taxpayer's prior efforts to correct plan issues or withholding procedures in assessing whether penalties are appropriate for back years. Therefore, we strongly recommend that our clients take steps now to comply with IRS requirements prior to being selected for audit. Even those clients who are fortunate enough not to be selected for the NRP examinations may find that "regular" payroll tax audits will involve an in-depth review of almost all the client's fringe benefit programs. In this regard, we have had a number of clients who have recently experienced "regular" payroll tax audits in which the IRS has issued an exhaustive list of IDRs on nearly every fringe benefit conceivable. Internal compliance reviews can mitigate the pain of these "regular" payroll tax audits too.

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