Equipment Rental May Be Disguised Wages

[2] We concur with your advice regarding the two potential aspects of the disguised wages. First, we agree with your analysis that the rental payments are really reimbursements under a non- accountable plan, and therefore must be included in the employees' wages. In the alternative, we agree that a reasonable, fair market value of the wages and of the equipment rental may be determined, with the allocation made accordingly, provided that the equipment rental agreement is bona fide.

[3] If an employer claims to be renting equipment from an employee, the examination division should try to verify that the equipment rental agreement is bona fide. The following factors may help to substantiate the employer's claim that a portion of the payments to the employee are for rental of the equipment: a written lease agreement, a term of lease that is more than one day in duration, an exclusive right by the employer to use the equipment, and a right in the employer to use the equipment even if the employee is not engaged to use the equipment.

[4] If you have any questions regarding the above comments, please call Linda Alsalihi of this office at (202) 622-6040.