Gift Card Taxation
I asked this question on the APA's ListServ, and I agree with the answer but thought I'd ask here to see if anyone has a different one. A manager purchased some $100 gift cards for $80 each, to give to employees. This was not an employer discount price but the price any customer would pay. The amount turned in for me to tax was $80. I believe the value of the gift cards, $100, should be taxed. Your thoughts?
Comments
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the $100 should be taxed
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taxation on the FMV = $100, what the employee generally would have paid.
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Actually, FMV per the IRS is not what it cost the employer nor what the employee thinks it is worth, but the amount that the employee would have to pay to obtain the item under similar circumstances.
Per Pub 15-B page 24 "Fair market value (FMV). The FMV of a fringe benefit is the amount an employee would have to pay a third party in an arm's-length transaction to buy or lease the benefit. Determine this amount on the basis of all the facts and circumstances. Neither the amount the employee considers to be the value of the fringe benefit nor the cost you incur to provide the benefit determines its FMV."
The question is whether the FMV applies to cash items, such as the gift card, or if the cash value of the card is the determining factor. One other factor to consider, this must be a card that is limited to a particular store. The discounted price is to induce the holder of the card to use it at that particular store. In that sense, the price the customer would pay for the card is probably the actual value. Otherwise, why not simply give the employees $80 so that they can buy the card if they chose?
