Q: Several of our church's employees are provided with computers and internet access to assist in the performance of their job. No part of the internet access is charged to employees' income, even for employees who stay after work to use their church-provided computer for personal internet research. Is this a taxable, or a nontaxable, fringe benefit?
A: The tax code specifies that "de minimis fringe benefits" are not taxable to an employee. This refers to benefits that are so immaterial in value that it would be unreasonable and or administratively impractical to account for them. This exception would apply, for example, to an employee who uses an employer-provided internet connection for a few minutes each month. It would not apply to employees who use an employer-provided internet connection several times each month for significant amounts of time. Internet usage is considered to be a "utility" expense by the Tax Court, and as a result is not subject to the strict substantiation rules that apply to listed property. To illustrate, in a recent case the Tax Court noted that "internet expenses are utility expenses. Strict substantiation therefore does not apply, and the Court may … estimate petitioners' deductible expense, provided that the Court has a reasonable basis for making an estimate."