Final regulations clarify qualified transportation fringe rules

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December 2020

Overview

The 2017 tax reform act generally eliminated the deduction for business expenses for providing employees with qualified transportion fringe benefits and for providing or paying for employee commuting.  The IRS and Treasury have finalized regulations proposed in June 2020 on these disallowances.  The final regulations provide helpful clarifications, especially as regards the application of the exceptions for QTFs to the disallowance and how the rules apply during the COVID-19 pandemic. 

The takeaway

The final regulations provide rules that add clarity and increase administrability, especially as regards the application of the Section 274(e) exceptions.  As in the final regulations on the meal and entertainment expense disallowance, the adoption of the dollar-for-dollar approach for amounts treated as compensation to an employee mitigates a harsher rule in the proposed regulations.  The application of the exception for goods and services sold to customers for an adequate and full consideration to parking with no value favorably resolves a troublesome issue. 

Although formal rules clarifying that expenses for QTFs are not subject to disallowance when employees must work at home because of the COVID-19 pandemic would be preferable, the suggestions in the preamble for how those expenses may qualify for deduction under the rules provided are helpful.

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Brian Daily

Partner, PwC US

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