Reimbursements to Employees for Parking at Nontemporary Work Locations Are Excludible from Wages

T often works at locations away from his office on a long-term basis. His company's expense reimbursement arrangement provides that an employee may be reimbursed for all parking expenses incurred at work locations away from the employee's office, whether or not those expenses would be deductible under Sec. 162 by the employee.

Under Sec. 132(a)(5), gross income does not include any benefit that is a qualified transportation fringe. Under Sec. 132(f)(1), qualified transportation fringes include qualified parking. Under Sec. 132(f)(2), the amount excludible for qualified parking may not exceed $175 per month.

Sec. 132(f)(5)(C) provides:

The term "qualified parking" means parking provided to an employee on or near the business premises of the employer or on or near a location from which the employee commutes to work by [mass transit, including van pool transportation provided by a person providing transportation for compensation or hire], in a commuter highway vehicle, or by carpool. Such term shall not include any parking on or near property used by the employee for residential purposes.

Under Secs. 3121(a)(20) and 3401(a)(19), wages do not include any benefits provided to an employee if, at the time the benefit is provided, it is reasonable to believe the employee would be able to exclude the benefit under Sec. 132.

Rev. Rul. 99-7 addresses under what circumstances daily transportation expenses (including parking) that a taxpayer incurs in going between his residence and work location are deductible. Sec. 162(a) allows a deduction for all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business. Under Sec. 262, however, no deduction is allowed for personal living or family expenses. The costs of commuting to work (including parking) generally are nondeductible personal expenses under Regs. Secs. 1.162-2(e) and 1.262-1(b)(5).

However, under Rev. Rul. 99-7, if a taxpayer has one or more regular work locations, he may deduct under Sec. 162(a) the daily transportation expenses incurred in going between his residence and a temporary work location. Under the ruling, a temporary work location is a work location realistically expected to last (and that does in fact last) for one year or less (in the absence of facts and circumstances indicating otherwise). If employment at a work location is realistically expected to last for more than one year or there is no realistic expectation that the employment will last for one year or less, the employment is not temporary--regardless of whether it actually exceeds one year. If employment at a work location initially is realistically expected to last for one year or less, but at some later date the employment is realistically expected to exceed one year, that employment will be treated as temporary (in the absence of facts and circumstances indicating otherwise) until the date that the taxpayer's realistic expectation changes and will be treated as not temporary after that date.

The Sec. 132(a)(5) exclusion for qualified parking is intended to provide a tax-free benefit for commuter parking. In other words, this provision is generally intended to provide a benefit for parking costs not deductible under Sec. 162(a). Under Rev. Rul. 99-7, parking costs incurred at a temporary work location are generally deductible under Sec. 162(a), while costs for parking at any nontemporary work location are considered personal and are therefore nondeductible. Thus, reimbursement for parking at any nontemporary work location under the standards in Rev. Rul. 99-7 falls within the meaning of "parking provided to an employee on or near the business premises of the employer" under Sec. 132(f)(5)(C). Accordingly, these parking benefits are qualified transportation fringes, as long as the taxpayer meets the other requirements under Sec. 132(f), including the statutory monthly limit.

IRS Letter Ruling 200105007 (9/28/00)