Bumpy Tax Landing on Employee Benefit

In a new Tax Court case, Mihalik, C Memo 2022-36.4/13/22, a retired pilot took advantage of a special program of his former employer that provided free airline tickets on a stand-by basis. Although the value of such benefits may qualify for a tax-free statutory fringe benefit, the Tax Court refused to give clearance in this instance.  

Generally, the cost of de minimis fringe benefits is exempt from federal income tax. This occurs when it is impractical or unreasonable for an employer to keep track of relatively small benefits. It may range from use of the company fax machine or copier for personal reasons to free coffee, soft drinks or donuts in the office. Also, the value of no-additional cost services may be exempt from tax. A “no-additional cost service” is

(1) provided by an employer to an employee

(2) at no substantial additional cost to the employer

(3) for use by the employee; and

(4) is offered for sale to customers or clients in the normal course of business.