IRS Delays Effective Date on Qualified Transportation Fringes

Notice 2009-95 delays the effective date from January 1, 2010 to January 1, 2011. The IRS said it delayed the effective date because certain transit systems need additional time to complete the process of adapting their technology to achieve compatibility with the requirements for transportation fringes.

The Internal Revenue Code dictates there are no employee substantiation requirements if an employer distributes a transit pass, including a voucher or similar item to employees. The code also says an employer reimbursement is a qualified transportation fringe benefit if no voucher or similar item is available to the employee in exchange for a transit pass.

Revenue Ruling 2006-57 (see IRS Expands on Qualified Transportation Fringe Benefits) 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.

Notice 2009-95 is here .