Section 338.—Certain Stock Purchases Treated as Asset Acquisitions

26 CFR 1.338–6: Allocation of ADSP and AGUB among target assets.

T.D. 9158

DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1

Treatment of Certain Nuclear Decommissioning Funds for Purposes of Allocating Purchase Price in Certain

holding, respectively, that the definition of “wages” does not include any benefit provided to or on behalf of an employee if, at the time such benefit is provided, it is reasonable to believe that the employee will be able to exclude such benefit from income under § 132.

X’s position with respect to the transaction described in this ruling is meritless. An employee may exclude from gross income employer reimbursements for qualified parking expenses, but only if those expenses were actually incurred by the employee. If an employee is given a choice between cash compensation or an employer-provided benefit under a statutory exception to the constructive receipt rules, such as § 132(f)(4), or if an employer unilaterally reduces an employee’s cash compensation for the purpose of providing a non-taxable benefit, the benefit is treated as provided directly by the employer rather than purchased by the employee with the amount of the compensation reduction. Otherwise, the value of the benefit would not be excluded from the employee’s gross income. The cost of providing the parking is incurred by Employer X, not Employee A, and the value of the benefit is excludable from A’s gross income under § 132(a)(5) because the parking is on or near X’s business premises, and the parking benefit is provided by X. Although the § 132(a)(5) exclusion applies to the qualified parking benefits provided by X, there is no expense incurred by Employee A for X to reimburse, and therefore the “reimbursement” payments that X makes to A are not excluded from gross income under § 132(a)(5). The conclusion would be the same whether the compensation reduction was mandatory or elective. The conclusion would also be the same if the employer originally provided free parking to employees and then upon implementing the payroll arrangement purported to impose a charge on employees for parking. See also, Rev. Rul. 2002–3, 2002–1 C.B. 316, which holds that a purported reimbursement of health insurance premiums paid by the employer, and not by employees, is not excludable from the gross income of employees under §§ 106(a) and 105(b). Because the “reimbursement” payments were not reimbursements of expenses incurred by A for parking, it was unreasonable for X to believe at the time

the “reimbursements” were paid to A that A would be able to exclude the payments from gross income under § 132(a)(5). Thus, the “reimbursement” payments are not excluded from wages for FICA, FUTA, or federal income tax withholding purposes under §§ 3121(a)(20), 3306(b)(16), or 3401(a)(19), respectively.

HOLDING

The exclusion from gross income under § 132(a)(5) does not apply to the payments characterized by the employer as “reimbursements.” Employee A has not incurred an expense for parking for which there can be a reimbursement. Accordingly, amounts that Employer X pays to Employee A purportedly as reimbursements are included in Employee A’s gross income and are wages subject to employment taxes under §§ 3121(a), 3306(b), and 3401(a). This is the outcome whether or not the amounts of Employer X’s payments are calculated to provide Employee A with the same net pay A received prior to the implementation of the payroll arrangement.

In addition, this ruling applies to arrangements with respect to benefits other than parking where: (1) an employee’s salary (and gross income) is reduced in return for a non-taxable benefit, and (2) the employer “reimburses” the employee for some or all of the cost of the non-taxable benefit and excludes the reimbursement from the employee’s salary (and gross income) even though that cost was paid by the employer and not the employee.

DRAFTING INFORMATION

The principal author of this revenue ruling is Stephen D. Suetterlein of the Office of Associate Chief Counsel (Tax Exempt & Government Entities). For further information regarding this revenue ruling, contact Mr. Suetterlein at (202) 622–6040 (not a toll-free call).