Nonprofit Resources


Gift Week: De Minimis Fringe Benefits

Situation GW4: Tami, the administrative assistant for the team at University Outreach (UO), loses her mother after a prolonged illness. UO sends Tami’s family a flower arrangement that cost $68. Gwen, their CFO, calls us and asks if they must include the value of the flowers in Tami’s W-2.

We tell Gwen that generally, under Internal Revenue Code section 132(e) the flowers would be a de minimis fringe benefit and excludable from Tami’s income. The value of the flowers at $68 may be a gray area (see below). Also, it would appear that the cost of the flowers might be included on UO’s Form 990, Part IX, Line 9 as an “other employee benefit.”


From Treasury Regulation 1.132-6(e)(1):

Benefits excludable from income. Examples of de minimis fringe benefits are occasional typing of personal letters by a company secretary; occasional personal use of an employer’s copying machine, provided that the employer exercises sufficient control and imposes significant restrictions on the personal use of the machine so that at least 85 percent of the use of the machine is for business purposes; occasional cocktail parties, group meals, or picnics for employees and their guests; traditional birthday or holiday gifts of property (not cash) with a low fair market value; occasional theater or sporting event tickets; coffee, doughnuts, and soft drinks; local telephone calls; and flowers, fruit, books, or similar property provided to employees under special circumstances (e.g., on account of illness, outstanding performance, or family crisis). [Emphasis added.]

Under Revenue Ruling 59-58 (and other guidance), if, as a means of promoting goodwill, an employer makes a general distribution of hams, turkeys or other items of merchandise of nominal value at Christmas or other comparable holiday, the value of the gifts is not included in the income of the employees. However, if the employer distributes cash, or gift certificates or similar items of readily convertible cash value, the cash or value of such gifts is additional wages or salary, regardless the amount or value.

**There is a question of what the threshold might be for “low fair market value” in 2014. It would be easy to use the IRS’s “business gift” limit of $25, but that amount has not been inflation-adjusted for several decades. For the fun of it, there is a case in this vein from 1961 (the “Hallmark Cards” case) where $25 “gifts” were found to be “of small value relative to the earnings of taxpayer’s employees. Taxpayer intended these [items] to be gifts.”  We used the online US Inflation Calculator to determine that the $25 from 1961 would be equivalent to $199.28 in 2014. That may be a little high for “low fair market value.” Another thought is that the IRS does not require receipts for expenses (except lodging) that are less than $75 — maybe that would be a reasonable threshold.



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