BYU Law Review


Jay A. Soled


For well over a century, theorists have debated how the receipt of inkind benefits, such as meals and lodging furnished for the convenience of an employer and business entertainment opportunities, should be taxed. While debate participants have generally agreed that the receipt of such in-kind benefits constitutes income, the question has remained about whether to value such benefits at fair market value or at the recipient’s subjective value or to use some other metric. Because of administrative considerations in determining the tax base, the Internal Revenue Code (Code) historically used a binary approach: either include the in-kind benefit at its fair market value or exclude it entirely. This analysis explores an intermediate approach known as surrogate taxation, a process by which one taxpayer bears another taxpayer’s tax burden. Over the past several decades, surrogate taxation has evolved and grown in prominence. It is now commonly used to tax the receipt of in-kind benefits (and other forms of income) in ways that produce outcomes that are more administrable, equitable, and efficient than the Code’s binary approach. While this analysis concludes that direct taxation is preferable to surrogate taxation, administrative concerns sometimes dictate that surrogate taxation is often a necessary substitute.


© 2012 J. Reuben Clark Law School