Some Tax Hypotheticals I Did Not Bring Up in Class

1) Employer maintains a buisness for the distribution of marijuana. He offers his employees the opportunity to smoke a bowl with him whenever they're in the neighborhood. May the lower-level dealers exclude the fair market value of the marijuana they consume from gross income?

The free marijuana is likely excludable as a "de minimis fringe" under I.R.C. § 132(a)(4). An employee benefit is a "de minimis fringe" if, "after taking into account the frequency with which similar fringes are provided by the employer to the employer's employees," the value of that benefit is "so small as to make accounting for it unreasonable or administratively impracticable." I.R.C. § 132(e)(1).

Generally, the frequency will be determined by reference to how often Employer smokes out each individual employee. Treas. Reg. § 1.132-6(b)(1). However, "where it would be administratively difficult to determine frequency with respect to individual employees," frequency will be determined with regard to how often the employer smokes out his workforce as a whole. Treas. Reg. § 1.132-6(b)(2). Assuming that Employer is high as a motherfucking kite while he provides the fringe benefits, it would be administratively impracticable for him to remember what he did five minutes ago, much less which individual employee he has provided fringes, how many hits they each took, or how often. Of course, the same thing could be said about how often he smokes out his employees as a whole.

Further, the value of the marijuana is "so small as to make accounting for it unreasonable or administratively impractible." I.R.C. § 132(e)(1). Assuming that the average employee smokes between one and three bowls worth of marijuana (or two hits of "really good shit") while watching reruns of Aqua Teen Hunger Force², he is unlikely to have consumed more than the fair market value of a few cups of coffee and a donught. See Treas. Reg. § 1.132-6(e)(1).


2) Employer operates a brothel and a casino-hotel in the state of Nevada. He offers all his employees free time with any unoccupied hooker. What, if any, tax consequences do his employees face, should they choose to cash in on this fringe benefit?

This arrangement could arguably be either a "no-additional-cost service" or a "qualified employee discount." I.R.C. §§ 132(a)(1), 132(a)(2). First, however, we must separate out the employees that work only for the hotel. Both of these exclusions require the employees to be providing their services to Employer in "the ordinary course of [his brothel's] line of business." I.R.C. §§ 132(b)(1), 132(c)(4). For example, the brothel's bra-sorter is in the running, while the casino's blackjack dealer is out of luck.

Whether this benefit is a "no-additional-cost service" for brothel employees really depends on whether a whorehouse counts as an "excess capacity service." Treas. Reg. § 1.132-2(a)(2). If this is to be the case, we must assume that an unoccupied prostitute is analogous to an empty seat on a plane that an airline may travel in for free. See id. Arguably, this is the case since if the prostitute is just sitting there with her thumb up her ass³ instead of entertaining a customer, she's not generating any additional revenue for Employer's business. Further, the service provided can be minimal in terms of additional labor provided - the prostitute can simply lay there. However, § 1.132-2(a)(5)(ii) seems to suggest otherwise. Although the employer can arguably characterize the fringe benefit such that he is simply giving his employees access to otherwise unoccupied bedrooms, and that the hookers are providing an incidental service akin to that provided by airline stewardesses, it is more far more likely that the IRS would characterize fellatio, rather than use of the room as the primary service Employer provides.

However, even if the free whores are not a "no-additional-cost service," it may be a "qualified employee discount." Treas. Reg. § 1.132-2(a)(2). Under this categorization, the employees can exclude 20% of the cost of what Employer charges customers for the services that the prostitutes provide. I.R.C. § 132(c)(1)(B). This amount, of course, may vary from hooker to hooker, and therefore some employees may wish to avail themselves of a less-expensive whore in order to avoid the remaining 80% of their debauchery from being taxed at a higher rate.

What the fuck is wrong with me? Fuck it.

----------------------------------------------------------
¹ - Although I know why I've been on your mom. Hoo-ha!

² - Meatwad make the money, see. Meatwad get the honeys, G.

³ - Or, up a colleague's ass. Whatever.