In response to changes in the availability of electronic payment media on transit systems, the IRS announced that, beginning after Dec. 31, 2015, employers will no longer be permitted to provide qualified transportation fringe benefits in the form of cash reimbursement in geographic areas where a terminal-restricted debit card is readily available (Rev. Rul. 2014-32). After that date, the IRS will no longer permit employers to use cash reimbursement if the only available voucher or similar item exchangeable for a transit pass is a terminal-restricted debit card.
　　Two years ago, the IRS asked for comments on the use of smart cards and debit cards to provide qualified transportation benefits as the use of electronic media in transit systems became more widespread (see earlier coverage here). Rev. Rul. 2014-32 modifies and supersedes Rev. Rul. 2006-57 by describing eight situations involving transportation benefits and whether they qualify to be excluded from income under Sec. 132.
　　The eight situations are:
　　1.The employer offers smart cards that can be used only as fare media in the local transit system. The amount does not exceed the statutory monthly limit ($130 per month for 2014). In addition, the employer makes payments directly to the transit system, instructs how much should be placed on each employee’s card, and does not require employees to substantiate their use of the cards. This situation qualifies as exempt.
　　2.The facts are the same as in the first situation, except the employer provides a terminal-restricted debit card, which is a debit card that is restricted for use only at merchant terminals at points of sale at which only fare media for local transit systems is sold. This situation also qualifies.
　　3.In this situation, the employer has established a bona fide reimbursement arrangement, but the debit card provided to the employees does not qualify as a transit system voucher. They are not qualified transit system vouchers because the debit cards provided to employees can be used at merchants that sell transit fares, but also may sell other merchandise. Because vouchers exchangeable only for transit fares are not readily available, the employer is permitted to distribute benefits using a cash-reimbursement plan, as long as the employees must pay with after-tax amounts in their first month of participation and are required to substantiate their monthly expenses.
　　4.This situation is similar to No. 3 but does not qualify because the employer provides debit cards in advance to employees and requires employees to certify in advance that the will use the cards only for transportation. The rules only permit reimbursement of expenses after they have been incurred and require substantiation of use for transportation after the expense has been incurred.
　　5.This next situation involves debit cards that have technological enhancements so that they can only be used to purchase fare media from merchants that sell only fare media, and not from merchants that sell other items. In this situation, the benefits qualify for exclusion from income.
　　6.This situation involves reimbursements for debit cards used to purchase van pool rides. The plan qualifies because the van pool voucher provider does not sell any other merchandise.
　　7.This situation involves one plan that qualifies and one that does not. The one that qualifies involves a smart card that can be used to buy only fare media while the one that does not qualify involves a card that can be used for either transit or nontransit purposes.
　　8.In the last situation, the employer has been providing transit benefits to its employees using a bona fide cash-reimbursement arrangement. The debit card provider offers a terminal-restricted debit card, which is readily available for use in the geographic area of the employer’s business. The treatment in this situation is being changed prospectively to give employers time to comply. Under the new rule, beginning in 2016, employers will no longer be permitted to provide qualified transportation fringe benefits in the form of cash reimbursement in geographic areas where a terminal-restricted debit card is readily available.
　　来源：AICPA China