Publication 15-B Employer'S Tax Guide To Fringe Benefits

2) It is used primarily to transport a particular type of

Exclusion from wages. You can generally exclude the

load (other than over the public highways) in a con-

value of a working condition benefit that you provide to an

struction, manufacturing, processing, farming, min-

employee from the employee’s wages.

ing, drilling, timbering, or other similar operation for

Exception for independent contractors. You cannot

which it was specially designed or significantly modi-

exclude the value of parking or the use of consumer goods

fied.

that you provide in a product testing program from the

compensation that you pay to an independent contractor

Vans. A van with a loaded gross vehicle weight of

who performs services for you.

14,000 pounds or less is a qualified nonpersonal-use vehi-

cle if it has been specially modified so that it is not likely to

Exception for company directors. You cannot ex-

be used more than minimally for personal purposes. For

clude the value of the use of consumer goods that you

example, a van qualifies if it is clearly marked with perma-

provide in a product testing program from the compensa-

nently affixed decals, special painting, or other advertising

tion that you pay to a director.

associated with your trade, business, or function and has a

seat for the driver only (or the driver and one other person)

3. Fringe Benefit Valuation

and either of the following items.

•

Rules

Permanent shelving that fills most of the cargo area.

•

An open cargo area and the van always carries

This section discusses the rules that you must use to

merchandise, material, or equipment used in your

determine the value of a fringe benefit that you provide to

trade, business, or function.

an employee. You must determine the value of any benefit

that you cannot exclude under the rules in section 2 or for

Education. Certain job-related education that you provide

which the amount you can exclude is limited. See Includ-

to an employee may qualify for exclusion as a working

ing taxable benefits in pay on page 2.

condition benefit. To qualify, the education must meet the

In most cases, you must use the general valuation rule

same requirements that would apply for determining

to value a fringe benefit. However, you may be able to use

whether the employee could deduct the expenses had the

a special valuation rule to determine the value of certain

employee paid the expenses. The education must meet at

benefits.

least one of the following tests.

This section does not discuss the special valuation rule

•

used to value meals provided at an employer-operated

The education is required by the employer or by law

eating facility for employees. For that rule, see Regulations

for the employee to keep his or her present salary,

section 1.61-21(j). This section also does not discuss the

status, or job. The required education must serve a

special valuation rules used to value the use of aircraft. For

bona fide business purpose of the employer.

those rules see Regulations sections 1.61-21(g) and (h).

•

The education maintains or improves skills needed

in the job.

General Valuation Rule

However, even if the education meets one or both of the

You must use the general valuation rule to determine the

above tests, it is not qualifying education if it:

value of most fringe benefits. Under this rule, the value of a

fringe benefit is its fair market value.

•

Is needed to meet the minimum educational require-

ments of the employee’s present trade or business,

Fair market value. The fair market value (FMV) of a fringe

benefit is the amount an employee would have to pay a

•

Is part of a program of study that will qualify the

third party in an arm’s-length transaction to buy or lease

employee for a new trade or business.

the benefit. Determine this amount on the basis of all the

facts and circumstances.

Neither the amount that the employee considers to be

Outplacement services. An employee’s use of outplace-

the value of the fringe benefit nor the cost you incur to

ment services qualifies as a working condition benefit if

provide the benefit determines its FMV.

you provide the services to the employee on the basis of

need and you get a substantial business benefit from the

services distinct from the benefit that you would get from

Employer-provided vehicles. In general, the FMV of an

the payment of additional wages. Substantial business

employer-provided vehicle is the amount that the em-

benefits include promoting a positive business image,

ployee would have to pay to a third party to lease the same

maintaining employee morale, and avoiding wrongful ter-

or similar vehicle on the same or comparable terms in the

mination suits.

geographic area where the employee uses the vehicle. A

comparable lease term would be the amount of time that

Outplacement services do not qualify as a working con-

the vehicle is available for the employee’s use, such as a

dition benefit if the employee can choose to receive cash

1-year period.

or taxable benefits in place of the services. If you maintain

a severance plan and permit employees to get outplace-

Do not determine the FMV by multiplying a

ment services with reduced severance pay, include in the

cents-per-mile rate times the number of miles driven un-

employee’s wages the difference between the unreduced

less the employee can prove that the vehicle could have

severance and the reduced severance payments.

been leased on a cents-per-mile basis.

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Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 17

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