From the abstract:
The receipt of workplace fringe benefits has become increasingly ubiquitous. As a result of their employment, employees often receive a cornucopia of fringe benefits, including frequent-flier miles, hotel reward points, rental car preferred status, office supply dollar coupons, cellular telephone use, home Internet service, and, in some instances, even free lunches, massages, and dance lessons. Technological advances and workforce globalization are important contributory factors to the popularity of what were, until the turn of this century, previously unknown fringe benefits.
In years past, taxpayers could readily turn to the Internal Revenue Code (Code) to ascertain the income tax effects and reporting responsibilities associated with fringe benefit receipt. Code section 61 mandates that all accretions to wealth, including fringe benefits, constitute gross income; Code section 132 sets forth a list of those fringe benefits specifically excluded from gross income; and finally, for employment tax purposes, Code section 3401 defines the term “wages” to include fringe benefits.
For many years, this statutory framework sufficed to maintain the integrity of the tax base and to ensure taxpayer compliance. However, there has been a fundamental transformation in the manner in which a sizable segment of fringe benefits are currently dispensed. Rather than originating from the employer, they are instead supplied by various third-party vendors such as airlines, hotel chains, rental car companies, office supply distributors, and Internet and cell phone providers. The existing statutory tax compliance framework does not adequately address this marketplace transformation as many of these third-party-provided fringe benefits are not specifically excluded from income yet are not currently being reported as taxable.
This analysis examines what has been an increasingly commonplace phenomenon: employers and employees ignoring their responsibilities to report the receipt of these third-party-provided fringe benefits as taxable income. It argues that Congress has an obligation to preserve the tax base and, accordingly, must institute reform measures to ensure taxpayer compliance. Failure to take action will trigger an expansion of such fringe benefit offerings, eroding the tax base and jeopardizing the integrity of the income tax system.