IRS written determination 201532016

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 201532016
Release Date: 8/7/2015
Index Number: 61.00-00, 132.10-00
------------------------------
---------------------------------------
----------------------------------
------------------
-------------------------
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
--------------------
Telephone Number:
--------------------
Refer Reply To:
CC:TEGE:EOEG:ET2
PLR-135234-14
Date:
April 30, 2015
Legend:
City = -------------------
Smart Card= ----------------------------
Transit Authority=------------------------------------------
X=------
Y=-------
Dear -------------------:
This is in reply to your September 16, 2014 letter and subsequent
correspondence requesting a private letter ruling concerning the federal income and
employment tax consequences of Smart Cards given by City to its employees.
Facts:
In order to meet social, economic and environmental sustainability goals, City
has approved the allocation of funds to purchase Smart Cards for its employees as well
as other eligible employees who work in a designated area. City has entered into a
contract with Transit Authority to provide Smart Cards. Transit Authority is a regional
authority operating public transit services.
Pursuant to the contract with Transit Authority, City purchases a discounted
annual Smart Card for each of its full-time and part-time employees. The Smart Card
entitles the card holder to ride on all parts of Transit Authority’s regular bus route
transportation system as well as certain rapid transit systems operated by Transit

PLR-135234-14
2
Authority. The Smart Card can only be used for transit on Transit Authority’s mass
transit facilities.
The cost of the Smart Card to City is computed based on the total number of
employees multiplied by the cost of the Smart Card for the “area” in which they work, as
determined by Transit Authority. The Smart Card for employees in Area A costs City X
per year. The Smart Card for employees in Area B costs City Y per year. While the
cost of the Smart Card varies based on the location of the employee, the Smart Cards
are identical in functionality for both Area A and Area B.
Pursuant to the contract, City must purchase a Smart Card for each employee.
At the beginning of each calendar year, City makes the Smart Card available to all City
employees. The Smart Card expires the following December 31.
The Smart Card includes a photo of the employee and cannot be resold or
transferred to another individual. Pursuant to the contract, City deactivates the Smart
Card for any employee who ceases to be eligible for the Smart Card (e.g., the employee
retires or otherwise discontinues employment).
City has entered into a similar contract with Transit Authority to provide the Smart
Card to all full-time employees who work in a designated area of the City for employers
other than City. No rulings were requested on the tax consequences of that program
nor are any rulings given.
Law
Section 61(a)(1) of the Internal Revenue Code provides, in part, that gross
income includes compensation for services, including fees, commissions, fringe
benefits, and similar items.
Section 1.61-21(a)(2) of the Income Tax Regulations provides that to the extent
that a particular fringe benefit is specifically excluded from gross income pursuant to
another section of subtitle A of the Code, that section shall govern the treatment of that
fringe benefit.
Section 1.61-21(a)(3) provides that a fringe benefit provided in connection with
the performance of services shall be considered to have been provided as
compensation for such services.
Section 1.61-21(b)(2) provides that the fair market value of a fringe benefit is the
amount that an individual would have to pay for the particular fringe benefit in an arm’s-
length transaction. The regulation further provides that an employee’s subjective
perception of the value of a fringe benefit is not relevant to the determination of a fringe

PLR-135234-14
3
benefit’s fair market value nor is the cost incurred by the employer determinative of its
fair market value.
Section 132(a)(5) provides that any fringe benefit that is a qualified transportation
fringe is excluded from gross income.
Section 132(f)(1) provides that the term “qualified transportation fringe” includes
any transitpass.
Sections 132(f)(5)(A) and 1.132-9(b), Q/A-3 provide that a transit pass is any
pass, token, farecard, voucher or similar item entitling a person to transportation (or
transportation at a reduced price) if such transportation is on mass transit facilities or is
provided by any person in the business of transporting persons for compensation or hire
in a commuter highway vehicle.
Section 1.132-9(b) Q/A-18 provides that there are no employee substantiation
requirements if an employer distributes atransit pass (including a voucher or similar
item) in-kind to the employer’s employees.
Section 1.132-9(b), Q/A-5 provides that an employer may provide qualified
transportation fringe benefits only to individuals who are currently employees of the
employer at the time the qualified transportation fringe is provided.
Section 132(f)(2) provides a monthly limit on the amount of the fringe benefit
provided by the employer which may be excluded from an employee’s gross income
under §132(a)(5).
Section 132(f)(6) provides for an annual cost-of-living adjustment in the monthly
limit. The amount of the fringe benefit which may be excluded from an employee’s
gross income and wages for 2015 is limited to $130 per month for the aggregate of
transportation in a commuter highway vehicle and transit passes.
Section 1.132-9(b), Q/A-8 provides that 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 the amount excluded from gross income
under section 132(a)(5).
Section 1.132-9(b), Q/A-9(b) provides that transit passes distributed in advance
for more than one month, but not for more than twelve months, are qualified
transportation fringe benefits if the requirements of Q/A-9(c) are met. The applicable
statutory monthly limit under section 132(f)(2) may be calculated by taking into account
the monthly limits for all months for which the transit passes are distributed. In the case
of a pass that is valid for more than one month, such as an annual pass, the value of

PLR-135234-14
4
the pass may be divided by the number of months for which it is valid for purposes of
determining whether the value of the pass exceeds the statutory monthly limit.
Section 1.132-9(b), Q/A-9(c)(1) provides that the value of transit passes provided
in advance to an employee with respect to a month in which the individual is not an
employee is included in the employee’s wages for income tax purposes.
Section 1.132-9(b), Q/A-9(c)(2) provides that if transit passes are distributed in
advance for more than three months, the value of transit passes provided for the
months during which the employee is not employed by the employer is includible in the
employee’s wages for employment tax purposes regardless of whether at the time the
transit passes were distributed there was an established date of termination of the
employee’s employment.
Section 1.132-9(b), Q/A-9(d) provides examples. In Example 5, Employer F has
a qualified transportation fringe benefit plan under which its employees receive transit
passes semi-annually in advance of the months for which the transit passes are
provided. All employees of Employer F, including Employee X, receive transit passes
from F with a value of $390 on June 30 for the 6 months of July through December (of a
year in which the statutory monthly transit pass limit is $65). Employee X’s employment
terminates and his last day of work is August 1. Employer F’s other employees remain
employed throughout the remainder ofthe year.
In this Example 5, the value of the transit passes provided to Employee X for the
months September, October, November, and December ($65 times 4 months equals
$260) of the year is included in X’s wages for income and employment tax purposes.
The value of the transit passes provided to Employer F’s other employees is excludable
from the employees’ wages for income and employment tax purposes because such
value does not exceed the statutory monthly transit pass limit ($65 times six months
equals$390).
Section 3402(a) provides that every employer making a payment of wages shall
deduct and withhold upon such wages an income tax determined in accordance with
tables or computational procedures prescribed by the Secretary. Section 3102(a)
provides a similar withholding obligation on employers with respect to employee Federal
Insurance Contributions Act (FICA) taxes imposed by section 3101. Section 3111
imposes a corresponding tax on the employer.
Section 3401(a) provides, for federal income tax withholding purposes that
wages mean all remuneration for services performed by an employee for his employer,
including the cash value of all remuneration (including benefits) paid in any medium
other than cash. Section 3401(a)(19) excepts from wages any benefit provided to or on
behalf of an employee if, at the time such benefit is provided, it is reasonable to believe

PLR-135234-14
5
that the employee will be able to exclude it from income under section 132. Section
3121(a)(20) provides a parallel exclusion from wages forFICA tax purposes.
Section 1.132-9(b), Q/A-22(a) provides that qualified transportation fringe
benefits not exceeding the applicable statutory monthly limit are not wages for purposes
of FICA and federal income tax withholding. Qualified transportation fringe benefits
exceeding the applicable statutory monthly limit are wages for purposes of FICA and
federal income tax withholding and are reported on the employee’s Form W-2, Wage
and Tax Statement.
Section 1.132-9(b), Q/A-22(c) provides that if the value of noncash qualified
transportation fringes exceeds the applicable statutory monthly limit, the employer may
elect, for purposes of FICA 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.
Based solely on the information submitted, we rule as follows:
1) Because the Smart Card is a transit pass under section 132(f)(5)(A), the
employee may exclude the monthly fair market value of the Smart Card, up to the
applicable statutory monthly limit, from income. If the monthly fair market value of the
Smart Cardexceeds the statutory limit, the excess amount is included in the employee’s
gross income and wages.
2) For purposes of determining whether the value of the Smart Card exceeds the
statutory monthly limit, one twelfth of the fair market value of the annual Smart Card is
attributable to each month for which it is valid.
3) Provided the Smart Card is deactivated for any employee who ceases to be
eligible for the Smart Card, the value of the Smart Card will not be included in the
employee’s gross incomeor wages for the months during which the Smart Card is
deactivated.
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of
the Code provides that it may not be used or cited as precedent.
In accordance with the Power of Attorney on file with this office, a copy of this
letter is being sent to your authorized representative.

PLR-135234-14
6
The rulings contained in this letter are based upon information and
representations submitted by the taxpayer and accompanied by a penalty of perjury
statement executed by the appropriate party. While this office has not verified any of
the material submitted in support of the request for rulings, it is subject to verification on
examination.
Sincerely,
Lynne Camillo
Branch Chief, Employment Tax Branch 2 (Exempt
Organizations/Employment Tax/Government
Entities)
(TEGE Associate Chief Counsel)
Enclosures:
Copy of letter
Copy for section 6110 purposes