Paul L. Caron
Dean




Wednesday, April 18, 2018

Hemel & Herzig: Scott Pruitt’s Travel Could Leave Him With A Big Tax Bill

Washington Post op-ed:  Scott Pruitt’s Travel Could Leave Him With a Big Tax Bill, by Daniel Hemel (Chicago) & David Herzig (Valparaiso):

Scott Pruitt could be in tax trouble on top of his ethical and political problems.

The embattled administrator of the Environmental Protection Agency has reportedly spent nearly $3 million on security and travel since taking office in February 2017. That sum apparently includes the cost of a security detail that accompanied Pruitt and his family on a vacation to Disneyland and the Rose Bowl this winter.

Pruitt might owe federal and D.C. taxes on a large chunk of that money.

Government officials, like private-sector employees, must pay tax on “all income from whatever source derived.” That includes “fringe benefits” from an employer unless the fringe benefit falls within the scope of a specific exclusion.

Section 132 of the Internal Revenue Code provides an exclusion for “working condition fringes.” The Treasury Department and the Internal Revenue Service have promulgated detailed regulations that address when an employer-provided security detail can be counted as a “working condition fringe.”

The general rule is that when an employer provides bodyguards who transport and accompany an employee on personal travel, the value of the bodyguards’ services can be excluded as a “working condition fringe” only if a “bona fide business-oriented security concern” exists. To meet that requirement, the employer must conduct an independent security study and implement an “overall security program.” The overall security program must protect the employee on a 24-hour basis. If the employer provides the employee with transportation in a chauffeured vehicle, the chauffeur must be trained in “evasive driving techniques.”

These rules apply similarly to government and private-sector employers and employees. A 1992 amendment to the regulations expressly addresses the independent study requirement for government agencies: An agency satisfies the requirement if a person designated by the agency conducts a study in accordance with written internal procedures, and if the agency then applies the study’s specific recommendations on a consistent basis.

It’s doubtful that Pruitt’s security detail satisfies the criteria for exclusion as a working condition fringe.

https://taxprof.typepad.com/taxprof_blog/2018/04/hemel-herzig-scott-pruitts-travel-could-leave-him-with-a-big-tax-bill.html

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