Payroll in Practice: 8.19.2024 (1)

Question: The IRS refers on its webpage to a ruling that items with a value exceeding $100 could not be considered de minimis. Is this a clearly established dollar threshold, and are items valued up to $100 considered de minimis?

Answer: The de minimis fringe benefit concept is based on facts and circumstances rather than specific rules and clearly established thresholds. Whether a particular fringe benefit is de minimis depends on three factors: its value, how frequently it is provided, and whether accounting for it is unreasonable or impracticable.

Readers should recognize that information provided on the IRS website is general in nature and is based on the agency’s point of view. It may come without citations or analysis or may be directed toward a particular audience. For example, the reference to the $100 value is on a webpage intended for governmental entities. In addition to governmental entities, the IRS provides resources intended specifically for Indian tribal governments, charities, not-for-profit organizations, self-employed workers, small businesses, and individuals.

The ruling the IRS references appears to be Technical Advice Memorandum 200108042. A similar statement referencing the TAM is found in IRS Publication 5137, Fringe Benefit Guide, which is written for government entities and tax exempt organizations. For private employers, nearly identical guidance is found in IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits.

A TAM is guidance from the Office of Chief Counsel in response to technical or procedural questions that developed during a proceeding. The advice provided in the TAM represents the IRS’s final determination regarding a specific issue in a specific case. It cannot be relied on as precedent in other circumstances.

The statement in the TAM itself was more specific than those in the webpageand publication: “Thus, if an employer distributes turkeys, hams, or other merchandise of nominal value to its employees at holidays, the value of these items would not constitute salary or wages. Conversely, non-monetary achievement awards having a fair market value of $100 would not qualify as de minimis fringes and, consequently, would constitute salary and wages.”

The TAM did not provide any discussion of the reasoning behind the decision. Nor did it describe the nature or purpose of the awards or consider the possibility that the awards might qualify for exemption as employee service or safety achievement awards. The item discussed in the TAM was described as having a fair market value of $100. It was not an item with “value exceeding $100.” All the IRS said in the TAM was that a $100 achievement award, in that particular situation and for that particular employer, was not de minimis.

In some cases, with specific sets of circumstances, the IRS has indicated bright-line amounts. For example, there is a $4 maximum for qualifying promotional items that may be excluded for business gift limitation purposes. However, in another case, a $5 taxi fare was not de minimis because of the frequency with which it was provided to the employee. Occasional tickets for theater or sporting events may be de minimis if circumstances indicate they are infrequent or accounting for them would be administratively impracticable.

In a separate case, the IRS addressed whether an employer could exclude the value of employer-provided clothing and related accessories from its employees’ wages as de minimis fringe benefits. In its original response, the IRS determined that the items were de minimis because it would be unreasonable and administratively impractical for the employer to determine their value. On further investigation, the IRS determined that there were variations among the employer’s subdivisions as to the acquisition and distribution of the clothing and accessories. On the basis of those variations, the service concluded that it could not rule on a company wide basis that the items were de minimis fringe benefits and revoked the determination.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information

Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

Do you have a question for Payroll in Practice? Send it to phaggerty@prodigy.net.

(Final paragraph is amended)