IRS Information Letter 2015-0041 (Dec. 8, 2015)
Available at https://www.irs.gov/pub/irs-wd/15-0041.pdf
The IRS has issued another information letter explaining when a vanpool must satisfy the usage test known as the “80/50 rule” to be a qualified transportation benefit. If the 80/50 rule applies, at least 80% of the van’s mileage use must be for commuting trips during which at least 50% of the van’s adult seating capacity (excluding the driver) is occupied by commuting employees. A previous IRS information letter described the three types of vanpools that may be qualified transportation benefits—employer-operated, employee-operated, and private or public transit-operated vanpools—and explained that only employer-operated and employee-operated vanpools must satisfy the 80/50 rule (see our Checkpoint article). Private or public transit-operated vanpools are not subject to the 80/50 rule, but they are subject to other requirements, including a prohibition on cash reimbursements if transit passes are readily available for direct distribution to employees. The latest IRS letter considers these rules in response to an employee’s complaint that his employer is imposing the 80/50 requirement on his vanpool even though the vanpool is privately owned.
The new letter offers essentially the same descriptions of the three types of vanpools and affirms that only employer-operated and employee-operated vanpools are subject to the 80/50 rule. It explains that whether this employee’s vanpool is employee-operated or private transit-operated is a question of fact that can be determined by the IRS only if the employee requests a private letter ruling. It notes that while the employee may think he rides in a private transit-operated vanpool, his employer may have concluded that the vanpool is actually employee-operated. (In a previous letter, the IRS acknowledged the difficulty of determining who operates a vanpool, and suggested some relevant factors to consider when making that determination (see our Checkpoint article).) Finally, the letter observes that, although Code §132(f) sets the minimum requirements for excluding transit benefits from income and employment taxes, employers are free to impose additional requirements.
EBIA Comment: While this information letter doesn’t shed any new light on the important, and often murky, question of when a vanpool will be considered privately owned, it does make an important point: Employers who offer qualified transportation benefits are not obligated to allow their benefits to be used for every qualifying commuting expense. They may choose to offer a limited benefit, in which case it is important to have a written plan document that explains the benefit’s limited scope to employees and reserves the employer’s right to interpret the boundary. For more information, see EBIA’s Fringe Benefits manual at Sections XX.F (“Vanpooling”) and XX.I (“Plan Design Choices and Documents Needed to Establish and Administer a Plan”).
Contributing Editors: EBIA Staff.