8911 / How is the value of a fringe benefit that is not excludable under IRC Section 132 determined for purposes of determining the amount that must be included in the employee’s income?
Therefore, if the employee pays fair market value for the benefit, no amount must be included in gross income.2
The fair market value of a fringe benefit is determined on the basis of objective facts and circumstances. The amount that an individual would have to pay for the fringe benefit in an arm’s length transaction is considered in determining the fair market value.3 The regulations specifically provide that in calculating fair market value, any special relationship that exists between the employer and employee must be disregarded.4
Special optional rules are available for determining the fair market value of employer-provided automobiles. Specifically, the fair market value is based on the amount that the employee would be required to pay in order to lease the same or comparable vehicle, under comparable conditions (for example, taking use restrictions into consideration) in an arm’s length transaction in the same geographic area.5
1. Treas. Reg. § 1.61-21(b)(1).