[Code of Federal Regulations]
[Title 26, Volume 2]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.162-25T]

[Page 799-800]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.162-25T  Deductions with respect to noncash fringe benefits (temporary).

    (a) Employer. If an employer includes the value of a noncash fringe 
benefit in an employee's gross income, the employer may not deduct this 
amount as compensation for services, but rather may deduct only the 
costs incurred by the employer in providing the benefit to the employee. 
The employer may be allowed a cost recovery deduction under section 168 
or a deduction under

[[Page 800]]

section 179 for an expense not chargeable to capital account, or, if the 
noncash fringe benefit is property leased by the employer, a deduction 
for the ordinary and necessary business expense of leasing the property.
    (b) [Reserved]
    (c) Examples. The following examples illustrate the provisions of 
this section.

    Example (1). On January 1, 1986, X Company owns and provides the use 
of an automobile with a fair market value of $20,000 to E, an employee, 
for the entire calendar year. Both X and E compute taxable income on the 
basis of the calendar year. Seventy percent of the use of the automobile 
by E is in connection with X's trade or business. If X uses the special 
rule provided in Sec. 1.61-2T for valuing the availability of the 
automobile and takes into account the amount excludable as a working 
condition fringe, X would include $1,680 ($5,600, the Annual Lease 
Value, less 70 percent of $5,600) in E's gross income for 1986. X may 
not deduct the amount included in E's income as compensation for 
services. X may, however, determine a cost recovery deduction under 
section 168, subject to the limitations under section 280F, for taxable 
year 1986.
    Example (2). The facts are the same as in example (1), except that X 
includes $5,600 in E's gross income, the value of the noncash fringe 
benefit without taking into account the amount excludable as a working 
condition fringe. X may not deduct that amount as compensation for 
services, but may determine a cost recovery deduction under section 168, 
subject to the limitations under section 280F. For purposes of 
determining adjusted gross income, E may deduct $3,920 ($5,600 
multiplied by the percent of business use).

[T.D. 8061, 50 FR 46013, Nov. 6, 1985, as amended by T.D. 8063, 50 FR 
52312, Dec. 23, 1985; T.D. 8276, 54 FR 51026, Dec. 12, 1989; T.D. 8451, 
57 FR 57669, Dec. 7, 1992]