Revisiting the Taxation of Fringe Benefits

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 rewards 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 to ascertain the income tax effects and reporting responsibilities associated with fringe benefit receipt. However, today's fringe benefits have evolved far beyond what Congress contemplated when it enacted fringe benefit reform over thirty years ago. As a result, the existing statutory tax compliance framework does not adequately address the recent transformation of the workplace, as many modern fringe benefits are not specifically excluded from the income tax base yet are not currently being reported as taxable.This Article examines what has been an increasingly commonplace phenomenon: employers and employees ignoring their responsibilities to report the receipt of 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