Implementation of Debit Card Rules for Transportation Plans Delayed by IRS

November 12, 2007

In November 2006, the IRS issued Revenue Ruling 2006-57, long-awaited guidance on the use of debit cards for Section 132 Transportation Plans. The ruling related to the use of debit cards for transit passes, and was due to take effect on January 1, 2008.

Recently, the IRS recognized that card technology will not be ready by the deadline. In Notice 2007-70, the IRS delayed implementation of Revenue Ruling 2006-57 until January 1, 2009. Specifically, many mass transit providers were finding it difficult to update their present systems in order to comply with the Revenue Ruling.

Recall that cash reimbursements are permissible for transit passes only if vouchers are not "readily available" for distribution to employees. The Ruling held that smartcards (plastic cards containing a memory chip that stores the card serial number and the value of the fare media) and terminal-restricted debit cards (cards restricted for use only at terminals selling fare media) are permitted and are vouchers, thus avoiding the need for substantiation, as long as they can only be used to purchase transit-system fare media.

Merchant category code (MCC)-restricted debit cards (cards that can be used only at merchants with transit-related MCCs) may be permissible but are not vouchers. MCC-restricted debit cards cannot be offered where vouchers are readily available. Stringent substantiation and certification procedures must be followed when MCC-restricted debit cards are used.

The IRS has not issued any guidance regarding the use of electronic payment cards for parking or vanpooling.

Infinisource can assist employers who have a transportation plans or are considering adopting one. To gain information on these administrative services, you can go to the Products & Services section of Infinisource's website: www.infinisource.net.