Smartcard and related fare media rules delayed by IRS

The IRS announced in late 2009 another delay in the effective date of guidance on employer-provided transportation benefits using smartcards, debit cards, credit cards and other electronic media. The delay will give mass transit operators more time to update their systems to comply with the new rules, as many mass transit systems told the IRS they needed more time to modify their technology to make it compatible with the requirements.

Transportation benefits

Several years ago, the IRS announced that mass transit systems, mostly bus and subway systems, would have to implement special rules for electronic media, such as "smartcards" that allow an individual to access public transit with a pre-paid card. The new criteria require that transit operators update their operating systems.

One area of special concern for transit operators is smartcards. The value of transit pass benefits provided to employees through the use of a smartcard bought from a transit company is a qualified transportation fringe benefit if the card is usable only as fare media. Additionally, the value of transit pass benefits provided through the use of a terminal-restricted debit card purchased from a third-party is also a qualified transportation fringe benefit if the card may be used only at points of sale where nothing other than fare media is sold.

Delayed effective date

Transit operators asked for the IRS to postpone the effective date of the new rules. The IRS granted their request in past years and again this year.

The original effective date of the IRS's guidance was January 1, 2008. The new effective date is January 1, 2011. Many transit systems welcomed the delay.

Revenue Ruling 2006-57, Notice 2009-95