ITT: Federal Income Tax Forum

[Totalimmortal]

Another request for practice tests. Please PM me if you have any! Fed Tax. Ugh!

This please.

[brotherdarkness]

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[Jsa725]

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[wiz]

Another request for practice tests. Please PM me if you have any! Fed Tax. Ugh!

This please.

+1

[Danger Zone]

Plus one.

[SemperLegal]

Quick question:

The E&E says that for qualified employee discounts of goods the following rule applies:
1. The discount cannot exceed the employers profit margin for a representative period.

My notes, and old outlines have an additional rule:
1. The sale of the actual item cannot exceed cost.

Which is right?

E.g.

A Corp has $100,000 in sales, and its inventory costs are $50,000. However its markup on Widget is only $2 dollars (cost $7, sold to public for $5). Is the lowest price that A Corp can charge employees without them having taxable income $5 or $3.50?

[stillwater]

Quick question:

The E&E says that for qualified employee discounts of goods the following rule applies:
1. The discount cannot exceed the employers profit margin for a representative period.

My notes, and old outlines have an additional rule:
1. The sale of the actual item cannot exceed cost.

Which is right?

E.g.

A Corp has $100,000 in sales, and its inventory costs are $50,000. However its markup on Widget is only $2 dollars (cost $7, sold to public for $5). Is the lowest price that A Corp can charge employees without them having taxable income $5 or $3.50?

the language uses the term "aggregate" so its talking about the aggregate price of the property sold less the aggregate cost of the property. so you aren't looking at the overall business figures for the entire inventory, just of "property sold." the code language seems to indicate you only care about the particular item when viewed in aggregate.

[Tiago Splitter]

Quick question:

The E&E says that for qualified employee discounts of goods the following rule applies:
1. The discount cannot exceed the employers profit margin for a representative period.

My notes, and old outlines have an additional rule:
1. The sale of the actual item cannot exceed cost.

Which is right?

E.g.

A Corp has $100,000 in sales, and its inventory costs are $50,000. However its markup on Widget is only $2 dollars (cost $7, sold to public for $5). Is the lowest price that A Corp can charge employees without them having taxable income $5 or $3.50?

I assume you mean the cost is $5 and the normal price is $7. In this case, the least they can charge the employee is $5. The sale of the item cannot exceed cost is the opposite of the rule--the sale cannot be below the cost to the employer. Or put another way, if they discount the item below $5 for the employee everything below $5 is taxable income.

[stillwater]

Quick question:

The E&E says that for qualified employee discounts of goods the following rule applies:
1. The discount cannot exceed the employers profit margin for a representative period.

My notes, and old outlines have an additional rule:
1. The sale of the actual item cannot exceed cost.

Which is right?

E.g.

A Corp has $100,000 in sales, and its inventory costs are $50,000. However its markup on Widget is only $2 dollars (cost $7, sold to public for $5). Is the lowest price that A Corp can charge employees without them having taxable income $5 or $3.50?

I assume you mean the cost is $5 and the normal price is $7. In this case, the least they can charge the employee is $5. The sale of the item cannot exceed cost is the opposite of the rule--the sale cannot be below the cost to the employer. Or put another way, if they discount the item below $5 for the employee everything below $5 is taxable income.

this is correct. the code is just worded stupidly. thus, if the inventory was retailed priced at $7 for 1,000 widgets and the cost was $5,000 to the retailer ($5 per unit), the accetpable discount would be $2 per and anything above that discount would be income to the taxpayer.

also, this 132 provision is subject to the 132(j)(1) non-discrimination gloss, so it needs to be equally offered to highly compensated employees and rank and file.

[SemperLegal]

I wasn't sure if aggregate meant over the employers entire inventory, or just the item in question. Sounds like the latter, which means my notes are only slightly wrong.


Thanks all

[brotherdarkness]

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[SemperLegal]

I think its still good, with a significant phaseout from 65k-80k

Public Law 112-240
112th Congress ...

(a) In General.--Subsection (e) of section 222 is amended by
striking ``December 31, 2011'' and inserting ``December 31, 2013''.

This is the last year, but it will be effective on the day of the final

[brotherdarkness]

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[brotherdarkness]

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[Tiago Splitter]

Can someone explain the eating facility de minimis fringe to me? It seems that it is de minimis if it's on the employer's premises and if the revenue of the cafeteria exceeds the costs. How could revenue exceed cost if employees are getting free food? Do non-employees need to eat there too, and pay enough to recoup the cost of the free employee food plus generate a profit?

According to this link, the meals are deemed paid for but excludable from the employees income, and the employer can still count the regular cost as "revenue."

[brotherdarkness]

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[stillwater]

Can someone explain the eating facility de minimis fringe to me? It seems that it is de minimis if it's on the employer's premises and if the revenue of the cafeteria exceeds the costs. How could revenue exceed cost if employees are getting free food? Do non-employees need to eat there too, and pay enough to recoup the cost of the free employee food plus generate a profit?

According to this link, the meals are deemed paid for but excludable from the employees income, and the employer can still count the regular cost as "revenue."

Thank you! Logically inane, so it's perfect in the context of the fed income tax. I assume employers cannot deduct the cost for the meals? Or can they, subject to the 50% limitation?

i think 50% applies to entertainment costs. also, i think for the whole de minimis scheme to work it has to be only occasional (and it seems like that word is relatively undefined).

[Danger Zone]

LOL THIS CLASS

[brotherdarkness]

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[Tiago Splitter]

i think 50% applies to entertainment costs.

The 50% applies to both deductions for meal expenses and deductions for entertainment expenses (§274(n)).

One of the exceptions to 274(n) is de minimis fringes under 132(e).

I think the eating facility thing just happened to be put under the de minimis fringe section. It isn't actually de minimis in the sense that it's small, it's just not included as income to employees and just got tossed in under that subsection.

[Jsa725]

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[stillwater]

federal income tax makes me SICK

[brotherdarkness]

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[brotherdarkness]

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[Jsa725]

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