Guest Article

(From the December 20, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Transit Pass Requirements Again Postponed - This Time Until 2012

Recognizing that certain transit operators still need more time to update their systems to comply with the requirements, the IRS once again has delayed the effective date of Revenue Ruling 2006-57, which imposes restrictions on smartcards, debit cards, credit cards and other electronic media used to provide qualified transportation fringes under Code § 132(f). The effective date of the ruling is now delayed to January 1, 2012.

According to Notice 2010-94, some transit systems are having difficulty making their technology consistent with the requirements for vouchers set forth in the Revenue Ruling. A voucher is an instrument that an employer can purchase from a "voucher provider" that is accepted by one or more mass transit operators as fare media (or in exchange for fare media). Examples potentially include smartcards, debit cards, credit cards and other electronic media. Vouchers must be distributed in-kind by the employer (or by another person on behalf of the employer). This would include where a transit operator credits amounts to an employee's fare card as a result of the employer's payments to the operator. Significantly, a voucher must be useable only as fare media (or exchangeable only for fare media) and must not be capable of use otherwise (e.g., for parking or the purchase of other things).

Additional requirements also apply. The "voucher provider" cannot impose fare media charges greater than one percent (1%) of the average annual value of the voucher for the transit system and must not impose other restrictions that cause the voucher not to be "readily available." If vouchers (or similar items) that are exchangeable only for fare media are not readily available for an employer to distribute to its employees, the employer is permitted to provide qualified transportation benefits in the form of cash reimbursements to its employees under a bona fide reimbursement arrangement in which the employee substantiates the expenses. If such vouchers are readily available, however, the employer is not permitted to provide such cash reimbursements. See Revenue Ruling 2006-57.

As with the prior extensions the Notice states that, notwithstanding the new January 1, 2012 effective date, employers and employees may rely on Revenue Ruling 2006-57 for transactions that occur before that date.

The information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations. If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955. Copyright 2010, Deloitte.