[net.taxes] Employee Discounts

paulsen@ittvax.ATC.ITT.UUCP (Bill Paulsen) (08/21/85)

Is there an IRS imposed limit on employee discounts that retailers
can offer?  When did this become effective?

turano@silver.DEC (08/27/85)

**

 	With regard to employee discounts:

	>Is there an IRS imposed limit on employee discounts that retailers
	>can offer?  When did this become effective?

		It is my impression that section 132 of the IRC is
	governing.

	Sec 132 of the Internal Revenue Code deals with "Certain Fringe
	Benefits". Quoting (nonverbatim) only the provisions which relate 
	to the issue:

	Sec 132(a) Exclusion from Gross Income - Gross income shall not 
	include any fringe benefit which qualifies as a -
		(1)...
		(2)qualified employee discount
		(3)...
		(4)..

	Sec 132(c) Qualified Employee Discount Defined - For the purposes 
	of this section -
		(1) Qualified Employee Discount - The term 'qualified employee
		discount' means any employee discount with respect to qualified
		property or services to the extent that such discount does not
		exceed -
			(A) in the case of property, the gross profit percentage
			of the price at which the property is being offered
			to customers or
			(B) { deals with services}
		(2) Gross Profit Percentage - 
			(A) In general- The term 'gross profit percentage'
			means the percent which-
				(i) the excess of the aggregate sales price 
				of property sold by the employer to customers
				over the aggregate cost of such property to 
				the employer is of
				(ii) the aggregate sales price of such property
			(B) Determination of Gross Profit Percentage
				{deals with how to determine what the gross
				 profit percentage is to be}
		(3) Employee Discount Defined - The term 'employee discount'
		means the amount by which -
			(A) the price at which the property or services are
			provided to the employee by the employer is less than
			(B) the price at which the property or services are 
			being offered by the employer to customers
		(4) Qualified Property or Services - The term 'qualified
		property or services ' means any property ({exclusion of
		real property or investment property}) or services which
		are offered for sale to customers in the ordinary course
		of the line of business of the employer in which the
		employee is performing services.

	According to CCH this section was last amended and is effective 
	as of 1-1-85.

	This issue was previously addressed in IRS Publication 17 
	(Rev. Nov. 84):
		
		Qualified Employee Discounts. If your employer
	allows you to buy qualified property or services (defined below)
	at a discount ( a price that is less than the price it is sold to
	customers), you will not have to include in income the value of the
	discount to the extent that:
		1) The discount you get does not exceed the gross profit
		percentage of the price at which the property is being 
		offered for sale to customers or
		2){deals with services}

		{ The next four paragraphs deal with who is entitled to
		a discount, what is qualified property and limitations 
		as to what restrictions can be placed on the discount
		by the employer.}

	It would appear that this section of the code has been around at least 
	since the IRC of 1954.

	If you have a specific question your accountant, lawyer or local
	IRS will be able to answer it for you.

	{I am neither a lawyer nor an accountant and this does not constitute 
	legal advice. Although I've attempted to accurately transcribe the 
	documents cited, I can not guarantee that the sections cited are
	transcribed without error.}

	Tom Turano