Form 990 - Instructions For Schedule J Page 5
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6Disregarded benefits. Disregarded
of $100,000 for that year. These
in column (B)(ii) and $3,600 in column
additional amounts are deferred and
(F).
benefits under Regulations section
53.4958-4(a)(4) need not be reported in
are not vested until the executive has
Column (D). “Nontaxable benefits” are
column (D). “Disregarded benefits”
completed 3 years of service with
benefits specifically excluded from
generally include fringe benefits
Organization A. In year 4 the deferred
taxation under the Internal Revenue
excluded from gross income under
amounts for years 1 through 3 are paid
Code. Report the value of all
section 132. These benefits include the
to the executive. For each of the years
nontaxable benefits provided to or for
following.
1 through 3, Organization A enters
the benefit of the listed person, other
•
No-additional cost service.
$2,000 of deferred compensation for
than benefits disregarded for purposes
•
Qualified employee discount.
the executive in column (C). For year 4,
of section 4958 under Regulations
•
De minimis fringe.
Organization A enters $6,000 in column
section 53.4958-4(a)(4). Common
•
Reimbursements pursuant to an
(B)(iii) and $6,000 in column (F).
nontaxable and section 4958
accountable plan.
disregarded benefits, referred to as
Example 2. Under the terms of his
•
Working condition fringe.
“fringe benefits,” below are discussed in
employment contract with Organization
•
Qualified transportation fringe.
detail beginning on this page.
B beginning July 1 of calendar year 1,
•
Qualified moving expense
Depending on the type of benefit,
an executive is entitled to receive
reimbursement.
fringe benefits can be provided only to
$50,000 of additional compensation
•
Qualified retirement planning
employees or also to persons other
after he has completed five years of
services.
than employees, such as directors,
service with the organization. The
•
Qualified military base realignment
trustees, and independent
compensation is contingent only on the
and closure fringe.
contractors. Fringe benefits can be
longevity of service. The $50,000 is
De minimis fringe. A “de minimis
entirely personal in nature or can
treated as accrued or earned ratably
fringe” is a property or service the value
combine personal and business
over the course of the five years of
of which, after taking into account the
elements.
service, even though it is not funded or
frequency with which similar fringes are
vested until the executive has
The taxability of a benefit can
provided by the employer to the
completed the 5 years. Organization B
depend upon the form in which it is
employees, is so small as to make
makes payment of $50,000 to the
provided. For example, a cash housing
accounting for it unreasonable or
executive in calendar year 6.
allowance is ordinarily reportable in
administratively impractical.
Organization B enters $5,000 of
Form W-2, box 5. Under section 119,
deferred compensation in column (C)
Working condition fringe. A
housing provided for the convenience
for calendar year 1 and $10,000 for
working condition fringe is any property
of the employer can be excludable, and
each of calendar years 2 through 5. For
or service provided to an employee to
the fair rental value of in-kind housing
calendar year 6, Organization B enters
the extent that, if the employee paid for
provided to certain school employees
$50,000 in column (B)(iii) and $45,000
the property or service, the payment
can be part taxable and part
in column (F).
would be deductible by the employee
excludable, depending on facts and
under section 162 (ordinary and
circumstances. Taxable benefits must
Example 3. An executive
be reported on Form W-2.
necessary business expense) or
participates in Organization C’s
section 167 (depreciation). In some
The following benefits provided for a
incentive compensation plan. The plan
cases, property provided to employees
listed person must be reported in
covers calendar years 1 through 5.
may be used partly for business and
column (D) to the extent not reported
Under the terms of the plan, the
partly for personal purposes, such as
as taxable compensation in Form W-2,
executive is entitled to earn 1% of
automobiles. In that case, the value of
box 5 (or in box 1, if no compensation
Organization C’s total productivity
the personal use of such property is
is reported for that person in box 5) or
savings for each year during which
taxable compensation, and the value
Form 1099-MISC, box 7.
Organization C’s total productivity
of the use for business purposes
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Value of housing provided by the
savings exceed $100,000. Earnings
properly accounted for is a working
employer.
under the incentive compensation plan
condition fringe benefit.
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Educational assistance.
will be payable in year 6, to the extent
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Health insurance.
Accountable plan amounts. An
funds are available in a certain
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Medical reimbursement programs.
accountable plan is a reimbursement or
“incentive compensation pool.” For
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Life insurance.
other expense allowance arrangement
years 1 and 2, Organization C’s total
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Disability benefits.
that meets each of the following rules.
productivity savings are $95,000. For
•
Long-term care insurance.
each of years 3, 4, and 5, Organization
1. The expenses covered under the
•
Dependent care assistance.
C’s total productivity savings are
plan must be reasonable employee
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Adoption assistance.
$120,000. Accordingly, the executive
business expenses that are deductible
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Payment or reimbursement by the
earns $1,200 of incentive compensation
under section 162 or other provisions of
organization of (or payment of liability
in each of years 3, 4, and 5. She does
the Code.
insurance premiums for) any penalty,
not earn anything under the incentive
2. The employee must adequately
tax, or expense of correction owed
compensation plan in years 1 and 2
account to the employer for the
under chapter 42 of the Internal
because the relevant performance
expenses within a reasonable period of
Revenue Code, any expense not
criteria were not met in those years.
time.
reasonably incurred by the person in
Although the amounts earned under the
3. The employee must return any
connection with a civil judicial or civil
plan for years 3, 4, and 5, are
excess allowance or reimbursement
administrative proceeding arising out of
dependent upon there being a sufficient
within a reasonable period of time. See
the person’s performance of services
incentive compensation pool from
Regulations section 1.62-2 and Pub.
on behalf of the organization, or any
which to make the payment,
535, Business Expenses, for
expense resulting from an act or failure
Organization C enters $1,200 of
explanations of accountable plans.
to act with respect to which the person
deferred compensation in column (C) in
has acted willfully and without
years 3, 4, and 5. In year 6,
The method by which benefits under
reasonable cause.
Organization C pays $3,600 attributable
an accountable plan are provided
to years 3, 4, and 5, and enters $3,600
The list above is not all-inclusive.
(whether reimbursement, cash
-5-
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