Question

The employees of Mauve Accounting Services are permitted to use the copy machine for personal purposes, provided the privilege is not abused. Ed is the president of a civic organization and uses the copier to make several copies of the organization's agenda for its meetings. The copies made during the year would have cost $150 at a local office supply.

A. Ed must include $150 in his gross income.
B. Ed may exclude the cost of the copies as a no-additional-cost fringe benefit.
C. Ed may exclude the cost of the copies only if the organization is a client of Mauve.
D. Ed may exclude the cost of the copies as a de minimis fringe benefit.
E. None of these.

Answer 1

Ed may exclude the cost of the copies as a de minimis fringe benefit. This is because the value is relatively low and impractical to account for, and the copies were used for non-profit purposes, thus not required to be included in his gross income.

Step-by-step explanation:

The employee Ed using the copy machine for personal purposes at Mauve Accounting Services must consider whether this constitutes taxable income or not. The correct answer is Ed may exclude the cost of the copies as a de minimis fringe benefit, assuming the personal use does not constitute a significant expense for the employer. A de minimis fringe benefit is one that, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.

In Ed's case, the $150 cost of the copies made throughout the year is likely to fall into this category, given that it is relatively low and the copies were used for a non-profit civic organization. This would typically not require inclusion as part of his gross income, thus making option D the correct choice for his tax situation.