Final answer:
The use of a car rental agency's vehicle by an employee's daughter for personal purposes is considered a non-cash fringe benefit and is generally subject to income tax. The employer must determine the value of this use and report it as income on the employee's W-2. Frank should consult a tax professional or refer to IRS guidelines for accurate tax treatment.
Step-by-step explanation:
The tax treatment of Frank's employer providing a car for his daughter Nancy to use in Massachusetts is likely to be considered a fringe benefit. In the context of tax law, a fringe benefit is a form of pay for the performance of services. For example, if Frank is an employee, any benefit his employer provides to Frank is taxable and must be included in Frank's pay unless the law specifically excludes it. If Nancy is using the car for personal purposes and not for the business of the car rental agency, this personal use of the car is generally considered a non-cash fringe benefit and may be subject to income tax.
The employer should determine the value of the personal use and include it in Frank’s W-2, which would increase Frank’s taxable income. The exact rules and valuation methods can be complicated and may depend on whether the car is leased or owned by the employer, the amount of personal use, and whether the employer has a qualified commuting rule in place.
It's important for Frank to consult with a tax professional or refer to the IRS guidelines on fringe benefits for the proper treatment of this benefit. It is also worth noting that tax laws may vary and what is true at the federal level may differ in Texas or Massachusetts.