That holding came in a private letter ruling, which only directly affects the individual taxpayer requesting the IRS opinion; the taxpayer is not identified in the publicly released document.
According to the IRS document, the employer’s retiree health insurance program gives employees a chance within 15 days of starting work to waive retiree health care in exchange for a future pay increase. Electing the pay hike does not change the pay rate for employee services already performed.
Harry Beker, branch chief, health and welfare branch, Office of Division Counsel/Associate, who wrote the IRS letter, cited Section 1.451-2(a) of the Income Tax Regulations.That provision indicates that income, although not actually reduced to a taxpayer’s possession, is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given.
Beker said, however, that income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.
The bottom line, according to Beker: Employees working for the company requesting the private letter ruling are not to be considered as having received taxable income.
The IRS document is available here.