Qualified Transportation Fringe Benefits

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-113572-99] RIN 1545-AX33

TITLE: Qualified Transportation Fringe Benefits

AGENCY: Internal Revenue Service

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations relating to
qualified transportation fringe benefits. These proposed regulations
reflect changes to the law made by the Energy Policy Act of 1992,
the Taxpayer Relief Act of 1997, and the Transportation Equity Act
for the 21 Century. These proposed regulations affect st employers
that offer qualified transportation fringes and employees who
receive these benefits. This document also provides notice of a
public hearing on these proposed regulations.

DATES: Written and electronic comments must be received by April 26,
2000. Outlines of topics to be discussed at the public hearing
scheduled for June 1, 2000 at 10 a.m. must be received by May 10,
2000.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-113572-99), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to:
CC:DOM:CORP:R (REG-113572-99), Courier's Desk, Internal Revenue
Service, 1111 Constitution Avenue, NW., Washington, DC.
Alternatively, taxpayers may submit comments electronically via the
Internet by selecting the "Tax Regs" option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at
http://www.irs.ustreas.gov/tax_regs/reglist.html. The public hearing
will be held in room 2615, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed
regulations, John Richards of the Office of Associate Chief Counsel
(Employee Benefits and Exempt Organizations), (202) 622-6040;
concerning submissions of comments, the hearing and/or to be placed
on the building access list to attend the hearing, LaNita Van Dyke,
(202) 622-7190 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collections of information contained in this notice of proposed
rulemaking have been submitted to the Office of Management and
Budget for review in accordance with the Paperwork Reduction Act of
1995 (44 U.S.C. 3507(d)). Comments on the collections of information
should be sent to the Office of Management and Budget , Attn: Desk
Officer for the Department of Treasury, Office of Information and
Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service , Attn: IRS Reports Clearance Officer,
OP:FS:FP, Washington, DC 20224. Comments on the collection of
information should be received by March 27, 2000. Comments are
specifically requested concerning:

Whether the proposed collections of information are necessary for
the proper performance of the functions of the Internal Revenue
Service , including whether the information will have practical
utility;

The accuracy of the estimated burden associated with the proposed
collections of information (see below); How the quality, utility,
and clarity of the information to be collected may be enhanced; How
the burden of complying with the proposed collections of information
may be minimized, including through the application of automated
collection techniques or other forms of information technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.

The collections of information in this proposed regulation are in 26
CFR 1.132- 9(b). This information is required by the Internal
Revenue Service to implement section 132(f). This information will
be used to verify compliance with section 132(f). Section 132(f)(3)
provides that qualified transportation fringes can include cash
reimbursement for qualified transportation fringes. The proposed
regulations require that employers keep records of substantiation
provided by employees in order to receive cash reimbursement for
qualified transportation fringes. Section 132(f)(4) provides that an
employee may choose between cash compensation and any qualified
transportation fringe. The proposed regulations require that
employers keep records, in a verifiable form, such as written or
electronic, of employee elections to reduce compensation. The value
of qualified transportation fringes provided for a month exceeding
the applicable statutory monthly limit must be reported on the
employee's Form W-2. The burden for this requirement is reflected in
the burden for Form W-2. The likely recordkeepers are employers. The
likely respondents are employees.

Estimated total annual recordkeeping burden: 7,020,000 hours.
Estimated average annual recordkeeping burden per recordkeeper : The
average annual recordkeeping burden will vary depending on the size
of the employer. The estimated average annual recordkeeping burden
per recordkeeper is 26.5 hours.

Estimated number of recordkeepers: 265,343

Estimated total annual reporting burden: 5,948,728 hours

Estimated average annual reporting burden per respondent: .8 hours.

Estimated number of respondents: 7,264,970

Estimated annual frequency of responses: Monthly.

An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a
valid control number assigned by the Office of Management and
Budget. Books or records relating to a collection of information
must be retained as long as their contents may become material in
the administration of any internal revenue law. Generally, tax
returns and tax return information are confidential, as required by
26 U.S.C. 6103. Background This document contains a proposed
amendment to the Income Tax Regulations (26 CFR part 1) under
section 132(f). Congress amended section 132 as part of the Energy
Policy Act of 1992, Public Law No. 102-486, section 1911 (106 Stat.
3012), effective after December 31, 1992. This provision excludes
from gross income the value of any qualified transportation fringe
provided by an employer to an employee to the extent it does not
exceed the applicable statutory monthly limit.

This 1992 amendment to section 132 resulted in three changes to the
tax treatment of employer-provided transportation benefits. First,
Congress added an exclusion for transportation provided by an
employer to an employee in a commuter highway vehicle. Second, mass
transit passes provided by an employer to an employee became
excludable as a qualified transportation fringe and not as a de
minimis fringe. The exclusions for transportation provided by an
employer to an employee in a commuter highway vehicle and mass
transit passes were made subject to an aggregate $60 per month limit
(adjusted for cost of living). Third, Congress eliminated the
working condition fringe for commuter parking, imposed a $150 per
month limit (adjusted for cost of living) for the exclusion for
qualified parking, and provided that employer-provided parking is
excludable from gross income only as a qualified transportation
fringe. The 1992 amendment provided that qualified transportation
fringes could not be provided in lieu of salary.

Section 1072 of the Taxpayer Relief Act of 1997 (TRA '97), Pub. L.
No. 105-34 (111 Stat. 948), amended section 132(f), effective for
tax years beginning after The dollar limit for transportation in a
commuter highway vehicle and transit passes 1 was further increased
to $100 effective January 1, 2002.

December 31, 1997, to permit qualified parking to be provided to
employees in lieu of salary. Section 9010 of the Transportation
Equity Act for the 21 Century (TEA 21), st Pub. L. No. 105-178 (112
Stat. 507), amended section 132(f) to increase the monthly dollar
limits to $65 for transportation in a commuter highway vehicle and
mass transit passes and $175 for qualified parking and to provide
that, effective after December 31, 1 1997, any qualified
transportation fringe may be provided to employees in lieu of
salary.

Explanation of Provisions

This document contains proposed regulations under section 132. The
proposed regulations provide guidance, in question and answer form,
to employers that provide qualified transportation fringes to
employees. Qualified transportation fringes consist of
transportation in a commuter highway vehicle, any transit pass, and
qualified parking provided by an employer to an employee.

Notice 94-3, 1994-1 C.B. 327, provided guidance on qualified
transportation fringes in the form of questions and answers. The
proposed regulations reflect statutory changes in section 132(f)
since 1994, including the revised monthly dollar limits and the use
of bona fide salary reduction arrangements, as permitted under TRA
'97 and TEA 21, and generally conform with the guidance in Notice
94-3. In response to public comments, the proposed regulations also
provided additional guidance concerning the standards for
determining when the section 132(f) exclusion applies to cash
reimbursement of transit pass expenses.

Section 132(f) limits the value of qualified transportation fringes
that may be excluded from an employee's gross income. The proposed
regulations explain that there are two categories of qualified
transportation fringes for purposes of determining the amount that
is excludable from gross income. The first category is
transportation in a commuter highway vehicle and transit passes. The
second category is qualified parking. There is a statutory monthly
limit on the value of the benefits from each category that is
excludable from gross income. For 1999 and 2000, the statutory
monthly limit is $65 for transportation in a commuter highway
vehicle and mass transit passes and $175 for qualified parking. An
employee may receive benefits from each category provided the
applicable statutory monthly limit for that category is not
exceeded. The amount by which the value of qualified transportation
fringes provided by an employer to an employee exceeds the
applicable statutory monthly limit is included in the employee's
wages for income and employment tax purposes.

The proposed regulations provide that, for purposes of valuing
qualified parking, the valuation rules under section 1.61-21(b)
generally apply. With respect to employer-provided van pool
benefits, the regulations provide that an employer may use the
special valuation rules provided under section 1.61-21(c), (d), (e),
and (f) in valuing these benefits. An example in the proposed
regulations illustrates that in determining the value of a transit
pass sold at a discount for purposes of section 132(f), the purchase
price rather than the face amount of the transit pass controls. The
proposed regulations reflect that qualified transportation fringes
include cash reimbursement by an employer to an employee for
expenses incurred by the employee for transportation in a commuter
highway vehicle and qualified parking.

Section 132(f)(3) provides that qualified transportation fringes
include cash reimbursement for a transit pass only if a voucher or
similar item that is exchangeable for a transit pass is not readily
available for direct distribution by the employer to the employee.
In defining "readily available," the regulations reflect the general
standards set forth in Notice 94-3, under which an amount is readily
available if an employer can obtain it on terms no less favorable
than those available to an individual employee and without incurring
a significant administrative cost.

In addition, the proposed regulations clarify the meaning of
"significant administrative costs." The proposed regulations provide
that the determination of whether obtaining a voucher would result
in a significant administrative cost is made with respect to each
transit system voucher. A transit system voucher is a voucher that
is accepted by one or more mass transit operators (e.g., train,
subway, and bus) in an area as fare media (or in exchange for fare
media). The proposed regulations provide a safe harbor under which
administrative costs are treated as significant if the average
monthly administrative costs incurred by the employer for a voucher
(disregarding delivery charges imposed by the fare media provider to
the extent not in excess of $15 per order) are more than 1 percent
of the average monthly value of the vouchers for a system. These
standards are intended to provide clear guidance so that employers
can determine when qualified transportation fringes include cash
reimbursement for transit passes.

The proposed regulations provide that reimbursements may be made
only pursuant to a bona fide reimbursement arrangement. Thus, an
employee must provide substantiation that an expense has been
incurred for qualified transportation fringes in order to receive a
reimbursement. The regulations recognize that the substantiation
requirements vary depending upon the payment method used to purchase
transportation in a commuter highway vehicle, mass transit passes,
and qualified parking. The regulations provide examples of what
constitutes reasonable reimbursement procedures in certain
circumstances. For example, if an employee uses metered parking, the
substantiation requirement may be satisfied if the employee
certifies that the expense was incurred and the employer has no
reason to believe the employee did not actually incur the expense.

The proposed regulations provide that there are no substantiation
requirements with respect to mass transit passes provided directly
by an employer to its employees. Of course, an employer may impose
its own substantiation requirements in addition to those required
under the regulations.

The proposed regulations follow the approach taken in Notice 94-3
with respect to taxing the value of employer-provided parking
benefits provided to members of car and van pools. The regulations
provide that the "prime member" bears the tax Other pool members may
chose to reimburse the costs of the prime member, in which 2 event,
under Rev. Rul. 55-555, 1955-2 C.B. 20, the reimbursements will not
be includible in the prime member's gross income. See also Rev. Rul.
80-99, 1980-1 C.B. consequences with respect to the parking space.
The prime member is the employee 2 to whom the parking space is
assigned.

The proposed regulations reflect that qualified transportation
fringes may be provided under a compensation reduction arrangement
which permits an employee to make a compensation reduction election.
A compensation reduction election is an election in which the
employee chooses between a fixed amount of compensation to be
received at a specified future date and a fixed amount of qualified
transportation fringes to be provided with respect to a specified
future period (such as a calendar month). The proposed regulations
provide that the compensation reduction election for any month in a
year may not exceed the aggregate statutory monthly maximum for that
year (e.g., $240 for 1999 and 2000 ($65 plus $175)). The election
must be made before the employee is able currently to receive the
taxable compensation. Under the proposed regulations, the
determination of whether the employee is able currently to receive
the taxable compensation does not depend on whether the compensation
has been constructively received for purposes of section 451.

The proposed regulations require that an election be irrevocable
after the beginning of the period for which the qualified
transportation fringes will be provided. However, unused amounts can
be carried over to any subsequent months, including months in
subsequent years, but cannot be used for any purpose other than
qualified transportation fringes under section 132(f).

The proposed regulations provide that the exclusion for qualified
transportation fringes applies only to employees. Partners, 2-
percent S-corporation shareholders, and independent contractors are
not considered to be employees for purposes of qualified
transportation fringes. However, amounts may be excludable pursuant
to the working condition fringe rules and the de minimis fringe
rules that apply to partners, 2- percent S-corporation shareholders,
and independent contractors under section 132(d) and (e).

The proposed regulations provide that qualified transportation
fringes not exceeding the applicable statutory monthly limit are not
subject to employment taxes. However, qualified transportation
fringes exceeding the applicable statutory monthly limit are
includible in the employee's wages for income and employment tax
purposes. If the value of noncash qualified transportation fringes
provided to an employee exceeds the applicable statutory monthly
limit, the employer may follow the reporting and withholding
guidelines provided in Announcement 85-113, 1985-31 I.R.B. 31.

Announcement 85-113 provides that employers may elect, for purposes
of the FICA, the FUTA, and federal income tax withholding, to treat
noncash fringe benefits as paid on a pay period, quarterly, semi-
annual, annual, or other basis, provided that the benefits are
treated as paid no less frequently than annually. Announcement
85-113 also provides a special accounting rule for noncash fringes
provided during the last two months of a calendar year.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required.

An Initial Regulatory Flexibility Analysis has been prepared as
required for the collection of information in this notice of
proposed rulemaking under 5 U.S.C. § 603.

The analysis follows:

Initial Regulatory Flexibility Analysis

This proposed rule may have an impact on small organizations that
provide qualified transportation fringes in the form of cash
reimbursement or that offer qualified transportation fringes in lieu
of salary. Section 132(f)(3) provides that qualified transportation
fringes may be provided in the form of cash reimbursement. The
legislative history indicates that cash reimbursements must be made
pursuant to a bona fide reimbursement arrangement. Thus, this
proposed rule provides that employers must receive substantiation
from employees as a condition to providing cash reimbursement for
qualified transportation fringes. Section 132(f)(4) provides that an
employee may choose between cash compensation and qualified
transportation fringes. This proposed rule provides that employers
must keep records with respect to employee compensation reduction
elections. Thus, the requirements under this proposed rule create a
collection of information requirement for employers.

The objectives of this proposed rule with respect to employee
substantiation of qualified transportation fringes is to carry out
the legislative intent that cash reimbursement be provided by an
employer only under a bona fide reimbursement arrangement. The
objective of the recordkeeping requirement with respect to employee
compensation reduction elections is to ensure against
recharacterization of taxable compensation after it has been paid to
an employee. The legal basis for this proposed rule is section
132(f)(3) and (4).

All classes of employers will likely offer qualified transportation
fringes and therefore will be affected by this proposed rule.
Approximately 265,000 small entities may be affected by this
proposed rule. There are no professional skills necessary for the
recordkeeping required under this proposed rule.

The IRS is not aware of any other relevant federal rules which may
duplicate, overlap, or conflict with this proposed rule.

A less burdensome alternative for small organizations would be to
exempt those entities from the recordkeeping requirements under this
proposed rule. However, it would be inconsistent with the statutory
provisions and the legislative history to exempt those entities from
the recordkeeping requirements imposed under this rule. This
proposed rule provides several options which avoid more burdensome
recordkeeping requirements for small entities. This proposed rule
provides that (1) there are no substantiation requirements if the
employer distributes transit passes in kind; (2) a compensation
reduction election can be made electronically; (3) an election to
reduce compensation can be automatically renewed; and (4) an
employer can provide for deemed compensation reduction elections
under its qualified transportation fringe benefit plan.

Pursuant to section 7805(f) of the Internal Revenue Code, this
notice of proposed rulemaking will be submitted to the Chief Counsel
for Advocacy of the Small Business Administration for comment on its
impact on small business.

Comments and Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed
original and eight (8) copies) and electronic comments that are
submitted timely to the IRS. The IRS and Treasury Department
specifically request comments on the clarity of the proposed
regulations and how they can be made easier to understand, and on
the administrability of the rules in the proposed regulations. All
comments will be available for public inspection and copying.

A public hearing has been scheduled for June 1, 2000, beginning at
10 a.m. in room 2615 of the Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the 10 th Street entrance,
located between Constitution and Pennsylvania Avenues, NW. In
addition, all visitors must present photo identification to enter
the building. Because of access restrictions, visitors will not be
admitted beyond the immediate entrance area more than 15 minutes
before the hearing starts. For information about having your name
placed on the building access list to attend the hearing, see the
"FOR FURTHER INFORMATION CONTACT" section of this preamble.

The rules of 26 CFR 601.601 (a) (3) apply to the hearing. Persons
who wish to present oral comments at the hearing must submit written
comments and an outline of the topics to be discussed and the time
to be devoted to each topic (signed original and eight (8) copies)
by May 10, 2000. A period of 10 minutes will be allotted to each
person for making comments. An agenda showing the scheduling of the
speakers will be prepared after the deadline for receiving outlines
has passed. Copies of the agenda will be available free of charge at
the hearing.

Drafting Information

The principal author of these proposed regulations is John Richards,
Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury
Department participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements. Proposed
Amendments to the Regulations

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read to
read in part as follows:

Authority:26 U.S.C. 7805 * * *

Par. 2.Section 1.132-0 is amended by adding entries for §1.132-9 to
read as follows:

§1.132-0 Outline of regulations under section 132.

* * * * *

§1.132-9(a) Table of Contents.

§1.132-9(b) Questions and Answers.

* * * * *

Par. 3 Section 1.132-9 is added to read as follows:

§1.132-9 Qualified Transportation Fringes.

(a) Table of Contents.This section contains a list of the questions
and answers in §1.132-9.

Q-1. What is a qualified transportation fringe?

Q-2. What is transportation in a commuter highway vehicle?

Q-3. What are transit passes?

Q-4. What is qualified parking?

Q-5. To which workers may qualified transportation fringes be
provided?

Q-6. Must a qualified transportation fringe benefit plan be in
writing?

Q-7. Is there a limit on the value of qualified transportation
fringes that may be excluded from an employee's gross income? 

Q-8. What amount is includible in an employee's wages for income and
employment tax purposes if the value of the qualified transportation
fringe exceeds the applicable statutory monthly limit?

Q-9. Are excludable qualified transportation fringes calculated on a
monthly basis?

Q-10. May an employee receive qualified transportation fringes from
more than one employer?

Q-11. May qualified transportation fringes be provided to employees
pursuant to a compensation reduction agreement?

Q-12. What is a compensation reduction election for purposes of
section 132(f)?

Q-13. Is there a limit to the amount of the compensation reduction?

Q-14. When must the employee have made a compensation reduction
election and under what circumstances can the amount be paid in cash
to the employee?

Q-15. May an employee whose qualified transportation fringe costs
are less than the employee's compensation reduction carry over this
excess amount to subsequent periods?

Q-16. How does section 132(f) apply to expense reimbursements?

Q-17. May an employer provide nontaxable cash reimbursement under
section 132(f) for periods longer than one month?

Q-18. What are the substantiation requirements if an employer
distributes transit passes?

Q-19. May an employer choose to impose substantiation requirements
in addition to those described in this regulation? 

Q-20. How is the value of parking determined?

Q-21. How do the qualified transportation fringe rules apply to van
pools?

Q-22. What are the reporting and employment tax requirements for
qualified transportation fringes?

Q-23. How does section 132(f) interact with other fringe benefit
rules?

Q-24. May qualified transportation fringes be provided to
individuals who are partners, 2-percent shareholders of S-
corporations, or independent contractors? (b) Questions and Answers.

Q-1. What is a qualified transportation fringe?

A-1. (a) The following benefits are "qualified transportation
fringe" benefits:

(1) Transportation in a commuter highway vehicle.

(2) Transit passes.

(3) Qualified parking.

(b) An employer may simultaneously provide an employee with any one
or more of these three benefits.

Q-2. What is transportation in a commuter highway vehicle?

A-2. Transportation in a commuter highway vehicle is transportation
provided by an employer to an employee in connection with travel
between the employee's residence and place of employment. A
"commuter highway vehicle" is a highway vehicle with a seating
capacity of at least 6 adults (excluding the driver) and with
respect to which at least 80 percent of the vehicle's mileage is
reasonably expected to be-

(a) For transporting employees in connection with travel between
their residences and their place of employment; and

(b) On trips during which the number of employees transported for
commuting is at least one-half of the adult seating capacity of the
vehicle (excluding the driver).

Q-3. What are transit passes?

A-3. A "transit pass" is any pass, token, farecard, voucher, or
similar item (including an item exchangeable for fare media) that
entitles a person to transportation

--

(a) On mass transit facilities (whether or not publicly owned); or

(b) Provided by any person in the business of transporting persons
for compensation or hire in a highway vehicle with a seating
capacity of at least six adults (excluding the driver).

Q-4. What is qualified parking?

A-4. (a) "Qualified parking" is parking provided to an employee by
an employer

--

(1) On or near the employer's business premises; or

(2) At a location from which the employee commutes to work by
carpool, commuter highway vehicle, mass transit facilities,
transportation provided by any person in the business of
transporting persons for compensation or hire or by any other means.

(b) However, parking on or near property used by the employee for
residential purposes is not qualified parking.

(c) Parking is provided by an employer if--

(1) The employer pays for the parking;

(2) The employer reimburses the employee for parking expenses; or

(3) The parking is on property that the employer owns or leases. See
Q/A-16 of this section for rules relating to cash reimbursements.

Q-5. To which workers may qualified transportation fringes be
provided?

A-5. Qualified transportation fringes may be provided only by
employers to employees. The term "employee" for purposes of
qualified transportation fringes is defined in §1.132-1(b)(2)(i).
This term includes only common law employees and other statutory
employees, such as officers of corporations. See Q/A-24 of this
section for rules regarding partners, 2-percent shareholders, and
independent contractors.

Q-6. Must a qualified transportation fringe benefit plan be in
writing?

A-6. No. Section 132(f) does not require that a qualified
transportation fringe benefit plan be in writing.

Q-7. Is there a limit on the value of qualified transportation
fringes that may be excluded from an employee's gross income?

A-7. (a) Transportation in a commuter highway vehicle and transit
passes. Before January 1, 2002, up to $65 is excludable from the
gross income of an employee for transportation in a commuter highway
vehicle and transit passes provided by an employer for a month. On
January 1, 2002, this amount is increased to $100 per month.

(b) Parking. Up to $175 is excludable from the gross income of an
employee for qualified parking in a month.

(c) Combination. An employer may provide qualified parking benefits
in addition to transportation in a commuter highway vehicle and
transit passes.

(d) Cost-of-living adjustments. The amounts in paragraphs (a) and
(b) of this

Q/A-7 are adjusted annually, beginning with 2000, to reflect cost-
of-living. The adjusted figures are announced by the Service before
the beginning of the year.

Q-8. What amount is includible in an employee's wages for income and
employment tax purposes if the value of the qualified transportation
fringe exceeds the applicable statutory monthly limit?

A-8. Generally, an employee must include in gross income the amount
by which the fair market value of the benefit exceeds the sum of the
amount, if any, paid by the employee and any amount excluded from
gross income under section 132(a)(5). Thus, assuming no other
statutory exclusion applies, if an employer provides an employee
with a qualified transportation fringe that exceeds the applicable
statutory monthly limit and the employee does not make any payment,
the value of the benefits provided in excess of the applicable
statutory monthly limit is included in the employee's wages for
income and employment tax purposes. See § 1.61-21(b)(1). The
following examples illustrate the principles of this Q/A-8:

Example 1. (i) For each month in 2000, Employer M provides a transit
pass valued at $75 to Employee D, who does not pay any amount to
Employer M for the transit pass.

(ii) In this example, because the value of the monthly transit pass
exceeds the statutory monthly limit by $10, $120 ($75 - $65, times
12 months) must be included in D's wages for income and employment
tax purposes for 2000 with respect to the transit passes.

Example 2. (i) For each month in 2000, Employer M provides qualified
parking valued at $195 to Employee E, who does not pay any amount to
M for the parking.

(ii) In this example, because the fair market value of the qualified
parking exceeds the statutory monthly limit by $20, $240 ($195 -
$175, times 12 months) must be included in Employee E's wages for
income and employment tax purposes for 2000 with respect to the
qualified parking. Example 3. (i) For each month in 2000, Employer P
provides qualified parking with a fair market value of $220 per
month to its employees, but charges each employee $45 per month.

(ii) In this example, because the sum of the amount paid by an
employee ($45) plus the amount excludable for qualified parking
($175) is not less than the fair market value of the monthly
benefit, no amount is includible in the employee's wages for income
and employment tax purposes with respect to the qualified parking.

Q-9. Are excludable qualified transportation fringes calculated on a
monthly basis?

A-9. Yes. The value of transportation in a commuter highway vehicle,
transit passes, and qualified parking is calculated on a monthly
basis to determine whether the value of the benefit has exceeded the
applicable statutory monthly limit on qualified transportation
fringes. Except in the case of a transit pass, the applicable
statutory monthly limit applies to qualified transportation fringes
used by the employee in a month. In the case of a transit pass, the
applicable statutory monthly limit applies to the transit passes
provided by the employer to the employee in a month for that month
or for any previous month in the calendar year. Monthly exclusion
amounts are not combined to provide a qualified transportation
fringe in any month exceeding the statutory limit. A "month" is a
calendar month or a substantially equivalent period applied
consistently. The following examples illustrate the principles of
this Q/A-9:

Example 1. (i) Employee E incurs $150 for qualified parking used
during the month of June, 2000, for which E is reimbursed $150 by
Employer R. E incurs $180 in expenses for qualified parking used
during the month of July, 2000, for which E is reimbursed $180 by R.

(ii) In this example, because monthly exclusion amounts may not be
combined to provide a benefit in any month greater than the
applicable statutory limit, the amount by which the amount
reimbursed for July exceeds the applicable statutory monthly limit
($180 minus $175 equals $5) is includible in E's wages for income
and employment tax purposes.

Example 2. (i). Employee F receives transit passes from Employer G
with a value of $195 in the month of March (when the applicable
statutory monthly limit is $65). F was hired during January and has
not received any transit passes from G.

(ii). In this example, the value of the transit passes (three months
times $65 equals $195) is excludable from F's wages for income and
employment tax purposes. However, if F was not hired until March,
only $65 would be excludable from F's wages for income and
employment tax purposes.

Example 3. (i). Each month during 2000, Employer R distributes
transit passes with a face amount of $70 to each of its employees.
Transit passes with a face amount of $70 can be purchased from the
transit system by any individual for $65.

(ii). In this example, because the value of the transit passes
distributed by R does not exceed the applicable statutory monthly
limit ($65), no portion of the transit passes is included as wages
for income and employment tax purposes.

Q-10. May an employee receive qualified transportation fringes from
more than one employer?

A-10. Yes. The statutory monthly limits described in Q/A-7 of this
section apply to benefits provided by an employer to its employees.
For this purpose, all employees treated as employed by a single
employer under section 414(b), (c), (m), or (o) are treated as
employed by a single employer. See § 1.132-1(c). Thus, qualified
transportation fringes paid by entities under common control under
section 414(b), (c), (m), or (o) are combined for purposes of
applying the applicable statutory limit. In addition, an individual
who is treated as an employee of the employer under section 414(n)
is treated as an employee of the employer for purposes of section
132. See § 414(t). The following examples illustrate the principles
of this Q/A-10: Example 1. (i) During 2000, Employee E works for
Employers M and N, who are unrelated and not treated as a single
employer under section 414(b), (c), (m), or (o). Each month, M and N
each provide qualified parking benefits to E with a value of $100.

(ii) In this example, because M and N are unrelated employers, and
the value of the monthly parking benefit provided by each is not
more than the applicable statutory monthly limit, the parking
benefits provided by each employer are excludable as qualified
transportation fringes assuming that the other requirements of this
section are satisfied.

Example 2. (i) Same facts as in Example 1, except that M and N are
treated as a single employer under section 414(b).

(ii) In this example, because M and N are treated as a single
employer, the value of the monthly parking benefit provided by M and
N must be combined for purposes of determining whether the
applicable statutory monthly limit has been exceeded. Thus, the
amount by which the value of the parking benefit exceeds the monthly
limit ($200 minus $175 equals $25) for each month in 2000 is
includible in E's wages for income and employment tax purposes.

Q-11. May qualified transportation fringes be provided to employees
pursuant to a compensation reduction agreement?

A-11. Yes. An employer may offer employees a choice between cash
compensation and any qualified transportation fringe. An employee
who is offered this choice and who elects qualified transportation
fringes is not required to include the cash compensation in income
if--

(a) The election is pursuant to an arrangement described in Q/A-12
of this section;

(b) The amount of the reduction in cash compensation does not exceed
the limitation in Q/A-13 of this section;

(c) The arrangement satisfies the timing and reimbursement rules in
Q/A-14 and 16 of this section; and

(d) The related fringe benefit arrangement otherwise satisfies the
requirements set forth elsewhere in this section.

Q-12. What is a compensation reduction election for purposes of
section 132(f)?

A-12. (a) Election requirements generally. A compensation reduction
arrangement is an arrangement under which the employer provides the
employee with the right to elect whether the employee will receive
either a fixed amount of cash compensation at a specified future
date or a fixed amount of qualified transportation fringes to be
provided for a specified future period (such as qualified parking to
be used during a future calendar month). The employee's election
must be in writing or another form, such as electronic, that
includes, in a permanent and verifiable form, the information
required to be in the election. The election must contain the date
of the election, the amount of the compensation to be reduced, and
the period for which the benefit will be provided. The election must
relate to a fixed dollar amount or fixed percentage of compensation
reduction. An election to reduce compensation for a period by a set
amount for such period may be automatically renewed for subsequent
periods.

(b) Negative election permitted. An employer may provide under its
qualified transportation fringe benefit plan that a compensation
reduction election will be deemed to have been made if the employee
does not elect to receive cash compensation in lieu of the qualified
transportation fringe provided that the employee receives adequate
notice that a compensation reduction will be made and is given
adequate opportunity to choose to receive the cash compensation
instead of the qualified transportation fringe.

Q-13. Is there a limit to the amount of the compensation reduction?

A-13. Yes. Each month, the amount of the compensation reduction may
not exceed the combined applicable statutory monthly limits for
transportation in a commuter highway vehicle, transit passes, and
qualified parking. For example, for 2000, an employee could elect to
reduce compensation for any month by no more than $240 ($65 for
transportation in a commuter highway vehicle and transit passes,
plus $175 for qualified parking) with respect to qualified
transportation fringes. If an employee were to elect to reduce
compensation by $250 for a month, the excess $10 ($250 minus $240)
would be includible in the employee's wages for income and
employment tax purposes.

Q-14. When must the employee have made a compensation reduction
election and under what circumstances can the amount be paid in cash
to the employee?

A-14. The compensation reduction election must satisfy the following
requirements.

(a) Timing of election. The compensation reduction election must be
made before the employee is able currently to receive the cash or
other taxable amount at the employee's discretion. The determination
of whether the employee is able currently to receive the cash does
not depend on whether it has been constructively received for
purposes of section 451. The election must specify that the period
(such as a calendar month) for which the qualified transportation
fringe will be provided must not begin before the election is made.
For this purpose, the date a qualified transportation fringe is
provided is--

(1) The date the employee receives a voucher or similar item; or

(2) In any other case, the date the employee uses the qualified
transportation fringe.

(b) Thus, a compensation reduction election must relate to qualified
transportation fringes to be provided after the election.

(c) Revocability of elections. The employee may not revoke a
compensation reduction election after the employee is able currently
to receive the cash or other taxable amount at the employee's
discretion. In addition, the election may not be revoked after the
beginning of the period for which the qualified transportation
fringe will be provided.

(d) Compensation reduction amounts not refundable. Unless an
election is revoked in a manner consistent with paragraph (c) of
this Q/A-14, an employee may not subsequently receive the
compensation (in cash or any form other than by payment of a
qualified transportation fringe under the employer's plan). Thus, an
employer's qualified transportation fringe benefit plan may not
provide that an employee who ceases to participate in the employer's
qualified transportation fringe benefit plan is entitled to receive
a refund of the amounts by which the employee's compensation
reduction exceeds the actual qualified transportation fringes
provided to the employee by the employer.

(e) Examples. The following examples illustrate the principles of
this Q/A-14: Example 1. (i) Employer P maintains a qualified
transportation fringe benefit arrangement. Employees of P are paid
twice per month, with the payroll dates being the first and the
fifteenth day of the month. Under P's arrangement, an employee is
permitted to elect at any time before the first day of a month to
reduce his or her compensation payable during that month in an
amount up to the applicable statutory monthly limit (i.e., for 2000,
$65 if the employee elects coverage for transportation in a commuter
highway vehicle or a mass transit pass, or $175 if the employee
chooses qualified parking) in return for the right to receive
qualified transportation fringes up to the amount of the election.
If such an election is made, P will provide a mass transit pass for
that month with a value not exceeding the compensation reduction
amount elected by the employee or will reimburse the cost of other
qualified transportation fringes used by the employee on or after
the first day of that month up to the compensation reduction amount
elected by the employee. Any compensation reduction amount elected
by the employee for the month that is not used for qualified
transportation fringes is not refunded to the employee at any future
date.

(ii) In this example, the arrangement satisfies the requirements of
this Q/A-14 because the election is made before the employee is able
currently to receive the cash and the election specifies the future
period for which the qualified transportation fringes will be
provided. The arrangement would also satisfy the requirements of
this Q/A-14 and Q/A-13 of this section if employees were allowed to
elect to reduce compensation up to $240 (for 2000) per month.

(iii) The arrangement would also satisfy the requirements of this
Q/A-14 (and Q/A-13 of this section) if employees were allowed to
make an election at any time before the first or the fifteenth day
of the month to reduce their compensation payable on that payroll
date by an amount not in excess of one-half of the applicable
statutory monthly limit (depending on the type of qualified
transportation fringe elected by the employee) and P provides a mass
transit pass on or after the applicable payroll date for the
compensation reduction amount elected by the employee for the
payroll date or reimburses the cost of other qualified
transportation fringes used by the employee on or after the payroll
date up to the compensation reduction amount elected by the employee
for that payroll date.

Example 2. (i) Employee Q elects to reduce his compensation payable
on March 1 of a year (when the statutory monthly limit for
transportation in a commuter highway vehicle and transit passes is
$65) by $195 in exchange for a mass transit voucher to be provided
in March. The election is made on the preceding February 27.
Employee Q was hired in January of the year. On March 10 of the
year, the employer of Employee Q delivers to Employee Q a mass
transit voucher worth $195.

(ii) In this example, $130 is included in Employee Q's wages for
income and employment tax purposes because the compensation
reduction election fails to satisfy the requirement in this Q/A-14
and Q/A-12 of this section that the election relate to qualified
transportation fringes to be provided for a future period to the
extent the election relates to $65 worth of transit passes for each
of January and February of the year. No amount would be included in
Employee Q's wages as a result of the election if $195 worth of mass
transit passes were instead delivered to Employee Q in May of the
year (because the compensation reduction would relate solely to
fringes to be provided for a future period and the amount provided
does not exceed the aggregate limit for the period, i.e., the sum of
$65 for each of March, April, and May)

Q-15. May an employee whose qualified transportation fringe costs
are less than the employee's compensation reduction carry over this
excess amount to subsequent periods?

A-15. Yes. An employee may carry over unused compensation reduction
amounts to subsequent periods under the plan of the employee's
employer. The following example illustrates the principles of this
Q/A-15: Example. (i) By an election made before November 1, 1999,
Employee E elects to reduce compensation in the amount of $65 for
the month of November, 1999. E incurs $50 in employee-operated
commuter highway vehicle expenses during November for which E is
reimbursed $50 by Employer R. By an election made before December 1,
1999, E elects to reduce compensation by $65 for the month of
December. E incurs $65 in employee-operated commuter highway vehicle
expenses during December for which E is reimbursed $65 by R. Before
January 1, 2000, E elects to reduce compensation by $50 for the
month of January. E incurs $65 in employee-operated commuter highway
vehicle expenses during January for which E is reimbursed $65 by R
because R allows E to carry over to January, 2000, the $15 amount by
which the compensation reductions for November and December exceeded
the employee-operated commuter highway vehicle expenses incurred
during those months.

(ii) In this example, because E is reimbursed in an amount not
exceeding the applicable statutory monthly limit, and the
reimbursement does not exceed the amount of employee-operated
commuter highway vehicle expenses incurred during the month of
January, the amount reimbursed ($65) is excludable from E's wages
for income and employment tax purposes.

Q-16. How does section 132(f) apply to expense reimbursements?

A-16. (a) In general. The term "qualified transportation fringe"
includes cash reimbursement by an employer to an employee for
expenses incurred or paid by an employee for transportation in a
commuter highway vehicle or qualified parking. The reimbursement
must be made under a bona fide reimbursement arrangement which meets
the rules of paragraph (d) of this Q/A-16. The term "cash
reimbursement" does not include cash advances.

(b) Special rule for transit passes. The term "qualified
transportation fringe" includes cash reimbursement for transit
passes made under a bona fide reimbursement arrangement, but, in
accordance with section 132(f)(3), only if no voucher or similar
item that may be exchanged only for a transit pass is readily
available for direct distribution by the employer to employees. For
this purpose, a voucher or similar item is "readily available" if an
employer can obtain it--

(1) On terms no less favorable than those available to an individual
employee; and

(2) Without incurring a significant administrative cost.

(c) Significant administrative cost. Administrative costs relate
only to fees paid to fare media providers. The determination of
whether obtaining a voucher would result in a significant
administrative cost is made with respect to each transit system
voucher. A transit system voucher is a voucher that is accepted by
one or more mass transit operators (e.g., train, subway, and bus) in
an area as fare media (or in exchange for fare media).
Administrative costs are treated as significant if the average
monthly administrative costs incurred by the employer for a voucher
(disregarding delivery charges imposed by the fare media provider to
the extent not in excess of $15 per order) are more than 1 percent
of the average monthly value of the vouchers for a system. Thus,
whether a voucher is readily available without incurring a
significant administrative cost is determined with respect to the
transit system in each area for which the voucher may be used. The
following example illustrates the principles of this

Q/A-16:

Example. (i) Company C in City X sells mass transit vouchers to
employers in the metropolitan area of X worth $65 each. Several
different bus, rail, van pool, and ferry operators service X, and a
number of the operators accept the vouchers either as fare media or
in exchange for fare media. Employers can readily obtain vouchers
for distribution to their employees. To cover its operating
expenses, C imposes on each voucher a 50 cents charge, plus a $15
charge for delivery. Employer M disburses vouchers purchased from C
to its employees who use operators that accept the vouchers.

(ii) In this example, because the cost of a voucher disbursed to M's
employees is not more than 1 percent of the value of the voucher (50
cents divided by $65 equals 0.77 percent) and the delivery charges
are disregarded because they are not more than $15, vouchers for X
are readily available. Thus, the vouchers disbursed to M's employees
are qualified transportation fringes and any reimbursement of mass
transportation costs in X would not be a qualified transportation
fringe.

(d) Substantiation requirements. Employers that make cash
reimbursements must establish a bona fide reimbursement arrangement
to establish that their employees have, in fact, incurred expenses
for transportation in a commuter highway vehicle, transit passes, or
qualified parking. For purposes of section 132(f), what constitutes
a bona fide reimbursement arrangement may vary depending on the
facts and circumstances, including the method or methods of payment
utilized within the mass transit system. The employer must implement
reasonable procedures to ensure that an amount equal to the
reimbursement was incurred for transportation in a commuter highway
vehicle, transit passes, or qualified parking. The following are
examples of reasonable reimbursement procedures for purposes of this
Q/A-16:

(1) An employee presents to the employer a parking expense receipt
for parking on or near the employer's business premises and
certifies that the parking was used by the employee and the employer
has no reason to doubt the employee's certification.

(2) An employee submits a used transit pass to the employer at the
end of the month and certifies both that he or she purchased it, and
that he or she used it during the month, or presents a transit pass
to the employer at the beginning of the month and certifies that it
will be used it during the month. In both cases, the employer has no
reason to doubt the employee's certification.

(3) If a receipt is not provided in the ordinary course of business
(e.g., if the employee uses metered parking or if used transit
passes cannot be returned to the user), the employee certifies to
the employer the type and the amount of expenses incurred and the
employer has no reason to doubt the employee's certification.

Q-17. May an employer provide nontaxable cash reimbursement under
section 132(f) for periods longer than one month?

A-17. Yes. Qualified transportation fringes include reimbursement to
employees for costs incurred for transportation in more than one
month, provided the reimbursement for each month is calculated
separately and does not exceed the applicable statutory monthly
limit for any month. See Q/A-8 and 9 of this section if the limit
for a month is exceeded. The following example illustrates the
principles of this

Q/A-17: Example. (i) Employee R pays $100 per month for qualified
parking used during the period from April 1, 2000 through June 30,
2000. After receiving adequate substantiation from R, R's employer
reimburses R $300 in cash on June 30, 2000.

(ii) In this example, because the value of the reimbursed expenses
for each month did not exceed the applicable statutory monthly
limit, the $300 reimbursement is excludable from R's wages for
income and employment tax purposes as a qualified transportation
fringe.

Q-18. What are the substantiation requirements if an employer
distributes transit passes?

A-18. There are no substantiation requirements if the employer
distributes transit passes. Thus, an employer may distribute a
transit pass for each month with a value not more than the statutory
monthly limit without requiring any certification from the employee
regarding the use of the transit pass.

Q-19. May an employer choose to impose substantiation requirements
in addition to those described in this regulation?

A--19. Yes.

Q-20. How is the value of parking determined?

A-20. Section 1.61-21(b)(2) applies for purposes of determining the
value of parking.

Q-21. How do the qualified transportation fringe rules apply to van
pools?

A-21. (a) Van pools generally. Employer- and employee-operated van
pools, as well as private or public transit-operated van pools, may
qualify as qualified transportation fringes. The value of van pool
benefits which are qualified transportation fringes may be excluded
up to the applicable statutory monthly limit for transportation in a
commuter highway vehicle and transit passes, less the value of any
transit passes provided by the employer for the month.

(b) Employer-operated van pools. The value of van pool
transportation provided by or for an employer to its employees is
excludable as a qualified transportation fringe, provided the van
qualifies as a "commuter highway vehicle" as defined in section
132(f)(5)(B) and Q/A-2 of this section. A van pool is operated by or
for the employer if the employer purchases or leases vans to enable
employees to commute together or the employer contracts with and
pays a third party to provide the vans and some or all of the costs
of operating the vans, including maintenance, liability insurance
and other operating expenses.

(c) Employee-operated van pools. Cash reimbursement by an employer
to employees for expenses incurred for transportation in a van pool
operated by employees independent of their employer are excludable
as qualified transportation fringes provided that the van qualifies
as a "commuter highway vehicle" as defined in section 132(f)(5)(B)
and Q/A-2 of this section. See Q/A-16 of this section for the rules
governing cash reimbursements.

(d) Private or public transit-operated van pool transit passes. The
qualified transportation fringe exclusion for transit passes is
available for travel in van pools owned and operated either by
public transit authorities or by any person in the business of
transporting persons for compensation or hire. In accordance with
paragraph (b) of Q/A-3 of this section, the van must seat at least
six adults (excluding the driver). See Q/A-16(b) and (c) of this
section for a special rule for cash reimbursement for transit
passes.

(e) Value of van pool transportation benefits. Section 1.61-21(b)(2)
provides that the fair market value of a fringe benefit is based on
all the facts and circumstances. Alternatively, transportation in an
employer-provided commuter highway vehicle may be valued under the
automobile lease valuation rule in § 1.61-21(d), the vehicle cents-
per-mile rule in § 1.61-21(e), or the commuting valuation rule in §
1.61-21(f). If one of these special valuation rules is used, the
employer must use the same valuation rule to value the use of the
commuter highway vehicle by each employee who share the use. See §
1.61-21(c).

(f) Qualified parking prime member. If an employee obtains a
qualified parking space as a result of membership in a car or van
pool, the applicable statutory monthly limit for qualified parking
applies to the individual to whom the parking space is assigned.
This individual is the "prime member." In determining the tax
consequences to the prime member, the statutory monthly limit
amounts of each car pool member may not be combined. If the employer
provides access to the space and the space is not assigned to a
particular individual, then the employer must designate one of its
employees as the prime member who will bear the tax consequences.
The employer may not designate more than one prime member for a car
or van pool during a month. The employer of the prime member is
responsible for including the value of the qualified parking in
excess of the statutory monthly limit in the prime member's wages
for income and employment tax purposes.

Q-22. What are the reporting and employment tax requirements for
qualified transportation fringes?

A-22. (a) Employment tax treatment generally. Qualified
transportation fringes not exceeding the applicable statutory
monthly limit described in Q/A-7 of this section are not wages for
purposes of the Federal Insurance Contributions Act (FICA), the
Federal Unemployment Tax Act (FUTA), and federal income tax
withholding. Any amount by which an employee elects to reduce
compensation as provided in Q/A-11 of this section is not subject to
the FICA, the FUTA, and federal income tax withholding. Qualified
transportation fringes exceeding the applicable statutory monthly
limit described in Q/A-7 of this section are wages for purposes of
the FICA, the FUTA, and federal income tax withholding and are
reported on the employee's Form W-2, Wage and Tax Statement.

(b) Employment tax treatment of cash reimbursement exceeding monthly
limits. Cash reimbursement to employees (for example, cash
reimbursement for qualified parking) in excess of the applicable
statutory monthly limit under section 132(f) are treated as paid for
employment tax purposes when actually or constructively paid. See §§
31.3121(a)-2(a), 31.3301-4, 31.3402(a)-1(b) of this chapter.
Employers must report and deposit the amounts withheld in addition
to reporting and depositing other employment taxes. See Q/A-16 of
this section for rules governing cash reimbursements.

(c) Noncash fringe benefits exceeding monthly limits. If the value
of noncash qualified transportation fringes exceeds the applicable
statutory monthly limit, the employer may elect, for purposes of the
FICA, the FUTA, and federal income tax withholding, to treat the
noncash taxable fringe benefits as paid on a pay period, quarterly,
semi-annual, annual, or other basis, provided that the benefits are
treated as paid no less frequently than annually.

Q-23. How does section 132(f) interact with other fringe benefit
rules?

A-23. For purposes of section 132, the terms "working condition
fringe" and "de minimis fringe" do not include any qualified
transportation fringe under section 132(f). If, however, an employer
provides local transportation other than transit passes, the value
of the benefit may be excludable, either totally or partially, under
fringe benefit rules other than the qualified transportation fringe
rules under section 132(f). See §§ 1.132-6(d)(2)(i) (occasional
local transportation fare), 1.132-6(d)(2)(iii) (transportation
provided under unusual circumstances), and 1.61-21(k) (valuation of
local transportation provided to qualified employees).

Q-24. May qualified transportation fringes be provided to
individuals who are partners, 2-percent shareholders of S-
corporations, or independent contractors?

A-24. (a) General rule. Section 132(f)(5)(E) states that self-
employed individuals who are employees within the meaning of section
401(c)(1) are not employees for purposes of section 132(f).
Therefore, individuals who are partners, sole proprietors, or other
independent contractors are not employees for purposes of section
132(f). In addition, under section 1372(a), 2-percent shareholders
of S corporations are treated as partners for fringe benefit
purposes. Thus, an individual who is both a 2-percent shareholder of
an S corporation and a common law employee of that S corporation is
not considered an employee for purposes of section 132(f).

However, while section 132(f) does not apply to individuals who are
partners, 2-percent shareholders of S corporations, or independent
contractors, other exclusions for working condition and de minimis
fringes may be available as described in paragraphs (b) and (c) of
this Q/A-24. See §§ 1.132-1(b)(2) and 1.132-1(b)(4).

(b) Transit passes. The working condition and de minimis fringe
exclusions under section 132(a)(3) and (4) are available for transit
passes provided to individuals who are partners, 2-percent
shareholders, and independent contractors. For example, tokens or
farecards provided by a partnership to an individual who is a
partner that enable the partner to commute on a public transit
system (not including privately-operated van pools) are excludable
from the partner's gross income if the value of the tokens and
farecards in any month does not exceed the dollar amount specified
in § 1.132-6(d)(1). However, if the value of a pass provided in a
month exceeds the dollar amount specified in § 1.132-6(d)(1), the
full value of the benefit provided (not merely the amount in excess
of the dollar amount specified in § 1.132- 6(d)(1)) is includible in
gross income.

(c) Parking. The working condition fringe rules under section 132(d)
do not apply to commuter parking. See § 1.132-5(a)(1). However, the
de minimis fringe rules under section 132(e) are available for
parking provided to individuals who are partners, 2-percent
shareholders, or independent contractors that qualifies under the de
minimis rules. See § 1.132-6(a) and (b). The following example
illustrates the principles of this

Q/A-24:

Example. (i) Individual G is a partner in partnership P. Individual
G commutes to and from G's office every day and parks free of charge
in P's lot.

(ii) In this example, the value of the parking is not excluded under
section 132(f), but may be excluded under section 132(e) if the
parking is a de minimis fringe under § 1.132-6.

Robert E. Wenzel
Deputy Commissioner of Internal Revenue

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