IRS Again Delays Rules on Qualified Transportation Fringes

December 16, 2010 ( – The Internal Revenue Service has again delayed the effective date of guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes.

Notice 2010-94 is intended to provide relief to mass transit providers that have been unable to update their systems in order to comply with the rules, the agency said. The effective date of Revenue Ruling 2006-57 is now January 1, 2012.  

Revenue Ruling 2006-57 provides that smart cards and terminal-restricted debit cards are considered vouchers since amounts credited to the cards are only allowed to be used for transportation fares. Amounts applied to these cards within the code’s limits are excludable from gross income, and since the cards can only be used for transportation fares, no employee substantiation for charges on the cards is required.   

The ruling also addressed the use of merchant category code (MCC)-restricted debit cards as a transportation fringe benefit. The IRS determined that these debit cards may be used as a qualified transportation fringe, but only where another voucher is not readily available. Also, the card agreement must qualify as a “bona fide reimbursement arrangement,” making employee substantiation of charges to the card necessary.   

The IRS previously extended the ruling’s effective date to January 1, 2011 (see IRS Delays Effective Date on Qualified Transportation Fringes).