2. 



Documentation of the transfer arrangements 

 will help establish the bona fide nature of the 

 transaction. The employee must be responsible 

 for marketing the commodity. Sale back to the 

 employer will negate absolutely the non-cash 

 nature of the transaction. The employee must 

 assume risk of gain or loss. Stating the trans- 

 fer as equivalent to a set dollar amount will ne- 

 gate the non-cash nature. 



Cash equivalency. In addition to the factors 

 under item (1), there are other factors. If the 

 employer makes a cash advance that is to be 

 satisfied on sale of a commodity, the advance 

 will be considered wages. If the employee im- 

 mediately converts the commodity to cash, it 

 will be treated as cash. Ifthe in-kind payment 



is the only income an employee receives it will 

 be treated as cash unless the employee can show 

 that the commodity was held for some length of 

 time. Non-cash wages are exempt from FICA 

 but are subject to income tax. They should be 

 reported in box 3 of Form W-2 at the fair mar- 

 ket value at the time of the transfer This is 

 also the amount that the employer can deduct 

 as a business expense. 



Footnotes 



Explanation of abbreviations in citations: [IRC], 

 Internal Revenue Code section number; [Rev. Rul- 

 ing], IRS Revenue Ruling; [Temp. Reg.], IRS tem- 

 porary regulations; [Treas. Reg.], IRS final regula- 

 tions. 



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Fruit Notes, Winter, 1996 



17 



