I have no response to your question, Christine. I do, however, have a tangentially-related question: Doesn't the "lease" arrangement - where your home school pays you and your home school is paid back by the school that is "leasing you" (the school where you are visiting) - allow you to deduct expenses? Or at least deduct them against your stipend (if any)? I read Prof. Kahn's article, but I am still left wondering. In anticipation of visiting next year, perhaps I need to increase my monthly saving. . . . (I am envisioning a t-shirt, reading "Will Teach For Tax Deduction.")

The deductions are valid, it just depends on whether you are thrust into the AMT and how that affects your deductions. And now you've reached the limit of my tax knowledge.

Aren't all these benefits taxable to the employee in any event?

I am not sure how to square your statement that you are assuming that people who "game" the system are not "breaking the rules" with your question about whether "gaming" the system is "illegal." If it is not illegal, then neither the executives nor individual taxpayers should be "going up the river." In the case of the Enron scandal, Enron is accused of engaging in illegal activity, either because it violated the securities laws against fraud or because it violated the tax doctrine of substance over form.

If you are getting at the application by tax courts of the doctrine of substance over form, under which the courts will declare illegal a structure that complies with all of the IRS rules but the only point of the structure is to achieve a tax advantage and it has no real business or economic purpose, then I agree that individual taxpayers who get their employer to pick up their health club dues might run afoul of this doctrine if there really was "no economic substance" to the deal. Proving that there is no economic substance to it might be very difficult.

If one employer picks up your gym membership and the other doesn't, the first employer is effectively offering you a higher salary than the second. This small benefit might not tip the scales in your decision to work for one employer over another. If one employer offered you health insurance and the other didn't, that benefit is probably large enough to tip the scales.

The reason that employers began to offer benefits packages, including health insurance, is because during World War II the 1942 Stabilization Act made it illegal for employers to raise wages as an attempt to head off the possible inflationary pressures that such wage increases might spark, given the limited pool of labor. The Act, however, allowed employers to offer benefits packages. A 1943 administrative ruling determined that the benefits packages were not taxable as employee income. This ruling was codified into the 1954 Internal Revenue Code. This series of events is why private corporations became the main providers of health insurance for most Americans.

I worked in England for about four years for Clifford Chance. The UK taxes on individual income of wealthy professionals were extremely when compared to American tax rates. As a result, offering additional cash salary was pointless because the government took as much as 90% of the money earned above a certain point. So businesses gave their executives exclusive golf memberships, leases of luxury cars, etc. All of these were benefits and deductible by the corporations. The economic purpose behind these benefits was to keep the executives in England and working hard at those firms.

A few thoughts.

1. The tax play that Jeff Kahn and I refer to is to take a reduction in salary in exchange for the benefits. The benefits are excludible on the grounds that it's necessary to taking the job. (This assumes that the visiting job is far enough away from your tax home that commuting isn't possible. I haven't checked Jeff's tax analysis, but it sounds plausible, and Jeff is a very knowledgeable guy.) This puts you in the same tax position as if you had paid the expenses yourself and deducted them, but it will not expose you to the AMT, because you are not taking a misc itemized deduction.

2. The policy rationale, incidentally, is that you are incurring extra expenses by visiting, and those expenses are part of the cost of earning income and should be deductible (or excludible, if paid by the employer) because we have a net income tax, not a gross income tax. In theory, only a portion of the expenses should be deductible. But the Code takes an all-or-noting approach here.

3. When you violate the substance over form doctrine in tax, it's not normally an illegal act. It just means that you don't get the tax benefits. Now, if there is clear authority on point against you, or no reasonable basis for believing that you would win in court if it were litigated, then there might be criminal fraud. But the usual gray area case gives rise to civil, not criminal, penalties.

4. The difference between this sort of tax planning and Enron- or KPMG-style tax evasion is that there is an underlying transaction here with a business purpose. I.e., your decision to visit is not principally motivated by tax considerations, and you will actually visit, not just pretend to visit.

5. I readily acknowledge that we need clearer ethical rules. It's pretty confusing.