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August 20, 2010
Debit Cards and Smart Cards as Cash Reimbursement

In a BLR webinar entitled "Mileage/Commuting Expenses: How to Avoid Big Mistakes With These Employee Expenses," Mark E. Tabakman, Esq., partner in the nationwide law firm Fox Rothschild, LLP and Stacy Wade, Ph.D., CPA, assistant professor of accounting at Western Kentucky University, explained the Internal Revenue Service (IRS) will allow employers to provide qualified transportation fringe benefits in the form of debit cards or the new "smart cards" (IRS Rev. Rul. 2006-57, IRS Notice 2007-76, and IRS Notice 2008-74).

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Employers will be allowed to use these cards as a form of cash reimbursements if:

  • The transit system smart cards can be use solely to buy fares for that system;
  • Terminal-restricted debit cards can be used only at ticket vending machines, ticket windows, or venues that exclusively sell transit passes;
  • Debit cards are Merchant Category Code-restricted; or
  • Employers or employees provide proper substantiation when transit vouchers or terminal-restricted debit cards are not readily available.

While the effective date of Rev. Rule 2006-57 had been delayed until January 1, 2011 to allow certain transit systems additional time to complete the process of adapting their technology to achieve compatibility with the requirements for vouchers, the IRS has stated that employers and employees may rely on the ruling for transactions occurring prior to January 1, 2011 (IRS Notice 2009-95).

Mark E. Tabakman, Esq., is a partner in the nationwide law firm Fox Rothschild, LLP ( He advises clients throughout the country on all aspects of labor relations and employment law, as well as the development of corporate employment policies. Stacy Wade, Ph.D., CPA, is assistant professor of accounting at Western Kentucky University ( She teaches undergraduate and graduate courses in financial accounting and taxation.

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