Using the situation described below, write a professional memo in proper format to address whether the $3,000 gift card given to P&S employees by P&S would constitute taxable wages for the employee

ASSIGNMENT: Using the situation described below, write a professional memo in proper format to address whether the $3,000 gift card given to P&S employees by P&S would constitute taxable wages for the employee.

See the following paragraphs:

The P&S Partners believe the gift card’s value ($3,000) should not be included in an employee’s taxable wages to the extent the card is used for business purposes.

You work in P&S’s tax department.  The P&S partners have asked you to write a proper professional tax memo confirming their understanding or explaining to them why they are wrong.

The Situation:

It is March of 2020, the law firm Peabody & Sherman LLP (P&S), is forced to close their offices due to the Covid-19 pandemic.  Realizing their employees would be required to work from home for the foreseeable future, the P&S partners provide all their employees with a $3,000 stored value (gift) card to Staples, the office supply store. 

The Staples gift card shall be used by the employees to outfit their home offices in the way each employee saw fit.  The letter suggests that computer peripherals (docking stations, monitors, printers, tablets, scanners, etc.), hotspots, headsets, earbuds, desks, office chairs, lockable file cabinets and document shredders would be appropriate purchases.  The letter also indicated that other materials, supplies and equipment could be acceptable as long as the employee justifies the expenditure as business related.  As a note, all P&S employees are issued a laptop at the time they join the firm.  The laptop remains P&S property.  As a result, the purchase of a computer would not be a legitimate use of the gift card. The letter is clear that the gift card cannot be used for food and beverage purchases.

The gift card expires on June 30, 2020.  Any unused value on the gift card is returned to P&S. P&S receives from Staples the details of employee expenditures.  If any gift card purchase is deemed questionable, the P&S accounting department contacts the employee.  The employee has 20 business days to explain the business purpose of the transaction.  An employee’s salary is reduced by any unexplained transactions and the taxable wages as reported on the employee’s 2020 Form W-2 includes these uncleared expenditures.  This process is consistent with P&S business travel and expense reimbursement policy.

The P&S Partners believe the gift card’s value  ($3,000) should not be included in an employee’s taxable wages to the extent the card is used for business purposes.

You work in P&S’s tax department.  The P&S partners have asked you to write a proper professional tax memo confirming their understanding or explaining to them why they are wrong.

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