What The Trump Organization legal woes can teach us about payments to employees
Last month, the New York City District Attorney’s office announced that it had indicted Allen Weisselberg, The Trump Organization’s CFO of many years, for failure to report as taxable income a litany of non-cash benefits. I will steer clear of the possible political motivations behind this indictment because, ahem, I am not an idiot. (Some people might disagree with that statement!) However, the allegations against Mr. Weisselberg do provide an interesting backdrop to discuss how taxing authorities view different kinds of employer payments.
Alleged in the indictment is that Mr. Weisselberg benefited from the following payments made by The Trump Organization to him or on his behalf:
• Rent, utilities and garage expenses on Mr. Weisselberg’s New York City apartment
• Tuition expenses for members of Mr. Weisselberg’s family
• Leases on vehicles for Mr. Weiselberg and his wife
• Miscellaneous unreported cash payments
• Miscellaneous other personal expenses
The kicker here is not that The Trump Organization made these payments – employers are not forbidden from extending benefits to its employees – it is that these payments were not reported as compensation on Mr. Weisselberg’s W-2 each year. As a result, The Trump Organization (allegedly) took business expense deductions for expenses that were clearly personal in nature, and Mr. Weisselberg benefited from excluding these same payments from his taxable income to the tune of $1.76 million over 15+ years.
However, not all employee fringe benefits are taxable. Examples in
No-additional-cost services - a service the employer regularly offers for sale to customers and for which no substantial additional cost is incurred in providing it to employees
Qualified employee discounts - limited to property and services that are offered for sale to customers in the ordinary course of the business for which the employee is performing services
Working condition fringes - any property or service provided to an employee to the extent the employee would have been allowed a deduction for that property or service either as a deduction for trade or business expenses, or as a depreciation deduction
De minimis fringes - any property or service, the value of which is so small as to make accounting for it unreasonably or administratively impracticable
Qualified transportation fringes - for vanpooling, mass transit passes, parking and, before 2018, bicycle commuting
Qualified moving expense reimbursements - any amount received by an individual from an employer as a payment for or a reimbursement of expenses that would be deductible as moving expenses if paid directly by the individual (for years prior to 2018)
Qualified retirement planning services
Qualified military base realignment and closure fringe payments
Though not specifically treated as a fringe benefit, on-premises athletic facilities and qualified automobile demonstration use provided by an employer can also be excluded.
What are the takeaways from this case? 1. Don’t make enemies at the highest levels of government, and 2. if you are extending non-cash benefits to your workers, be sure that your reporting (or non-reporting) of these benefits complies with the tax rules!