Change and Continuity in Fringe Benefit Taxation: Seeking Sense and Sensibility

Abstract

This article examines the expansion of excludible fringe benefits in the U.S. federal income tax to simplify this very important area by returning to first principles of income inclusion. It begins by tracing the evolution of fringe benefit taxation as the Internal Revenue Service struggled to create a consistent framework for analyzing these exclusions with various theories that do not advance tax policy objectives and are now outdated. The article then proposes excluding only those fringe benefits that are necessary for an employee to complete his or her duties or are required for closely calibrated administrability concerns. This approach is then applied to the more significant fringe benefits in the present tax code.