Page 277 - Bruce Ellig - The Complete Guide to Executive Compensation (2007)
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Chapter 6. Employee Benefits and Perquisites 263
stock, additional documentation is needed. There may be no such thing as a free lunch, but a
lunch properly documented as business related is at least partially tax deductible if it conforms
to Section 162 of the IRC. Typically, business expenses are not taxable to the individual,
although nonbusiness use is taxable. Both are tax deductible to the company. However, such
expenses are limited to a 50 percent deduction in accordance with Section 274(n) of the IRC.
Section 274 should also be researched for deductibility of other expenses.
Apartments or Hotel Rooms. These are often provided in a city where company offices
are located. Such facilities are available for out-of-town company officials as well as key
employees working at the location who after attending a late business function stay over
rather than face a long commute and little sleep.
Where the use is strictly business, the company has a deductible expense and the execu-
tive avoids an imputed income charge. Some companies provide such facilities for key exec-
utives to use routinely during the week (almost a second home); in this case, the individual
would probably be subject to imputed income for non-business-required layovers. Certainly,
where an apartment, hotel, or house was provided as either a vacation place or a principal
place of residence, the individual would have income (and the company a tax deduction). For
some, the full use of a company apartment might be more attractive than relocating, espe-
cially if the executive can return to his or her home for the weekend. Thus, this perk could
be of moderate importance.
For executives who work at two different locations requiring significant travel time, some
companies permit the individual to rent an apartment at the second location and reimburse
for expenses, instead of using a company apartment or hotel. The advantage to the executive
is not having to do much packing when traveling to the second site. But unless the person
spends a lot of time at this location, it is unlikely to be cost effective to the company.
Club Membership. Club memberships take different forms, ranging from simple dining
memberships (sometimes restricted to luncheons) at facilities usually close to the office to the
full-range athletic or country clubs (where indoor and/or outdoor sports as well as dining and
dancing are available). Healthclub memberships are quite popular, especially if the company
does not have such a facility on site. While golf club memberships can have initiation fees as
high as $100,000 or more and monthly dues of $1,000 and up, city clubs are available for a
fraction of that expense. They may be university or athletic in name. Typically, they have
restaurant facilities, overnight lodging, athletic facilities, libraries, and some recreational and
entertainment activities. Many have reciprocal arrangements with other out-of-town clubs
that may be used when traveling. Airline club memberships are also popular as they permit
entrance to VIP lounges while in transit. The selection of club memberships that will be
subsidized or fully paid by the company may be made by the executive or by the company, or
may be mutually decided. In addition, depending perhaps on organization level, a determi-
nation will be made as to how many clubs will be allowed, what portion of costs will be
covered (e.g., initiation fee, annual memberships, or usage charges), and/or what annual
dollar limit if any will apply. For example, the CEO may be allowed three memberships of
his or her choice with a maximum annual subsidy of $20,000. The president may be allowed
two memberships with an annual subsidy of $10,000 and so on.
While paying all or part of the dues to an exclusive club is fairly normal, some compa-
nies go one step further: they own the club. These properties range from the simple golf club
to an exclusive hunting and fishing resort available for private use as well as business enter-
taining. However, the Revenue Act of 1978 disallows deductions for expenses incurred in