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DEPARTMENT OF THE TREASURY
WASHINGTON
ASSISTANT SECRETARY
The Honorable Paul S. Sarbanes
Chairman
Committee on Banking, Housing and Urban Affairs
309 Hart Senate Office Building
Washington, DC 20510-6075
Dear Chairman Sarbanes:
This is in response to your letter of August 8, 2002, on behalf of constituents regarding whether certain transit passes are considered readily available in cases where there are no fees or other restrictions imposed by a voucher provider. Your letter was referred to this office because it concerns a matter of tax policy.
Your letter notes that the regulations provide a 1-percent test for determining whether a voucher is "readily available" for purposes of determining whether an employer may provide passes or voucher, or instead may provide cash reimbursements for passes purchased by employees. As your letter also notes, the effective date for the 1-percent test is December 31, 2003. Your letter specifically asks if, prior to December 31, 2003, transit passes are considered readily available in cases where there are no fees or other restrictions imposed by a voucher provider.
In any cases in which there are no fees or other restrictions imposed by a voucher provider, then, under the regulations at 1.132-9, Q&A 16(b)(4), which went into effect on January 1, 2002, transit passes are considered readily available. In those situations, the exclusion under section 132(f) is available only if the employer distributes vouchers or transit passes to employees; the employer may not use a cash reimbursement system. Also, in no situation would section 132(f) apply if an employer merely were to provide cash to employees for them to use to purchase transit passes (although it may reimburse employees for their prior purchase of transit passes, assuming passes or vouchers are not readily available and the other conditions in section 132(f) are satisfied).
We hope this information is helpful to your constituents.
Sincerely,
Pamela F. Olson
Acting Assistant Secretary
Tax Policy
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