The private letter ruling, requested by “a political subdivision in State A,” said the exemption for the clothing items falls under an IRS rule allowing an income exclusion for benefits of minimal value where determining that value is “unreasonable or administratively impracticable,” the de minimus fringe benefit rule in Code Section 132(a)(4).
According to the letter, the employer provides items such as tee shirts, polo shirts, sweaters, jackets,swimsuits, socks, sweatshirts, coats, pants, jeans, shorts, gloves, hats, fanny packs, belts, clip-on ties, and equipment bags bearing the employer’s logo. The employer said it provided the items twice annually at the most.
Turning to the issue of the difficulty of accounting for the gifts, the IRS said generally that an “objective guidepost” would be if the cost of determining an item’s value would be greater than the cost of the benefit.
The tax agency ultimately agreed that the employer’s provision of work clothing items would qualify for the income tax exemption. The IRS cited the lack of precise cost information from vendors, the difficulty of establishing fair market value, and the costs that would have to be incurred to track the value received by each employee given the employer’s large and decentralized structure.
The ruling is available here.