Travel Risk Management & Secure Transportation Consulting – IRS 132.5 Assessments

Navigating the Complexities of IRS 1.132-5(m): Why You Need an Experienced Consultant for Your Independent Security Study

Navigating the intricacies of IRS Regulation 26 CFR § 1.132-5(m) is essential for corporations aiming to provide security benefits to key executives without incurring additional taxable income. This regulation allows certain security-related fringe benefits to be excluded from an employee’s gross income, provided that a bona fide business-oriented security concern exists. Establishing such a concern typically requires conducting an Independent Security Study (ISS) by a qualified consultant.

–

Is your organization interested in learning about income tax exemptions on security and travel for at risk employees?
Contact us for a free presentation.

–

Understanding IRS Regulation 26 CFR § 1.132-5(m)

This regulation permits employers to exclude the value of specific security benefits from an employee’s taxable income if:

Overall Security Program: The employer must implement a comprehensive security program, which can be substantiated through an Independent Security Study.
Independent Security Study: There must be a legitimate and specific basis for concern regarding the employee’s safety.

–

The Role of an Independent Security Study (ISS)

An ISS is pivotal in demonstrating the necessity of security measures for an employee. According to IRS guidelines, an ISS must:

Be conducted by an independent security consultant.
Provide an objective assessment of all relevant facts and circumstances.
Recommend specific security measures that are reasonable under the circumstances.
Ensure the employer consistently applies the recommended security measures.

Engaging an experienced consultant to perform an ISS ensures compliance with IRS requirements and provides a thorough evaluation of potential threats, leading to tailored security solutions that protect both the executive and the organization.

–

Case in Point

The tragic incident involving UnitedHealthcare CEO Brian Thompson underscores the critical importance of executive security. Thompson was fatally shot outside a New York City hotel, highlighting the vulnerabilities that high-profile executives face. In the aftermath, companies are reevaluating their security measures to protect their leadership.
Source: https://www.foxbusiness.com/business-leaders/corporations-need-rethink-executive-security-after-unitedhealthcare-ceos-death-experts-say

In some cases, companies have opted to compensate executives for the taxes incurred on security benefits rather than conducting an ISS to qualify for tax exclusions. For example, a company paid an additional $785,000 to cover the taxes associated with providing security benefits to an executive, illustrating the significant financial implications of not utilizing an ISS.
Source: https://archive.ph/20241205163640/https://www.wsj.com/business/unitedhealthcare-ceo-shooting-corporate-security-ca9cd820

–

Trust an Experienced Consultant with Your ISS

Conducting an ISS requires a nuanced understanding of security risks and IRS regulations. An experienced consultant brings:

Expertise: In-depth knowledge of potential threats and appropriate mitigation strategies.
Compliance Assurance: Familiarity with IRS requirements to ensure the study meets all necessary criteria.
Objectivity: An unbiased perspective essential for a credible assessment.
Tailored Recommendations: Customized security solutions that address the specific needs of the executive and organization.

By engaging a seasoned professional to conduct an ISS, companies can implement effective security measures, potentially qualify for tax exclusions, and avoid the substantial costs associated with compensating executives for taxable security benefits.

–

As an independent security consultant, the Independent Security Study provided by LaSorsa and Associates will list ‘reasonable recommendations’ based on industry best practices, leveraging decades of experience and provide the company with the substantial benefit they are seeking to achieve.

–

Navigating IRS Regulation 26 CFR § 1.132-5(m) and conducting an Independent Security Study are complex yet crucial steps in safeguarding executives and optimizing tax benefits. Entrusting this process to an experienced consultant ensures compliance, enhances security, and provides financial advantages for both the executive and the organization.

IRS 26 CFR § 1.132-5 Working condition fringes explains how corporate executives and high net-worth individuals within a recognized corporate structure may receive exemptions on their extraordinary fringe benefits not provided to other employees if certain conditions exist.

According to the IRS, if a ‘business-oriented security concern’ exists, that company may exclude certain expenditures related to the security and travel of an at-risk employee.

–