Comments Concerning Proposed Regulation on Qualified Transportation
Fringe Benefits under Internal Revenue Code Section 132(F)

II.  The “Readily Available Standard” for Cash Reimbursements

Internal Revenue Code section¹ 132(f)(1) allows for cash reimbursements for qualified transportation costs associated with commuter highway vehicles, qualified parking and mass transit passes. However, under section 132(f)(3), cash reimbursements for mass transit passes are allowed "only if a voucher or similar item that is exchangeable for a transit pass is not readily available for direct distribution by the employer to the employee."

The Proposed Regulation follows the standard that was previously set forth in Notice 94-3 for determining when a transit pass is readily available. A transit pass is considered to be "readily available" "[when] an employer can obtain it -- (1) on terms no less favorable than those available to an individual employee; and (2) without incurring significant administrative cost." The Proposed Regulation then creates a safe harbor for determining "significant administrative costs." Under the safe harbor, costs are significant "if the average monthly administrative costs incurred by the employer for a voucher (disregarding delivery charges imposed by the fare media provider to the extent not in excess of $15 per order) are more than 1 percent of the average monthly value of the vouchers for a system." The Proposed Regulation further states that the determination of whether there exists significant administrative cost is made for each area in which the voucher is used.

We applaud Treasury’s approach in creating a safe harbor rule for determining when vouchers will be required in lieu of cash reimbursement for transit passes. In the comments that follow, however, we recommend that the rules with regard to testing dates be clarified, that an additional safe harbor for multi-locational employers be added, and that certain other changes be made in the proposed safe harbor.