Corliss V Bowers 281 Us 376

c. Cafeteria Plan
Web-Master Inc. should adopt a cafeteria plan because it will provide employees with option to receive only those benefits they desire. Cafeteria plans are an employer provided benefit that allows each employee to select the benefits that he or she would like to receive from a range of benefits within the plan. This program will provide an employee only with those benefits that he or she may want or need and the ability to receive cash if they choose to not utilize the various benefits. The employee will then pay for these benefits, including the cash option, on a pre-tax basis through a salary reduction agreement, reducing their gross income from income tax purposes.
i. Taxation of Cafeteria Plans
The doctrine of constructive receipt requires taxpayers to pay taxes on income that is “available” to them, whether or not they take actual possession of the income. Corliss v Bowers, 281 US 376 (1930); Treas. Reg. § 1.451-2(a). Under this rule, any plan that provides the employees of a company a choice between taxable or nontaxable benefits must be included in the income of the employee. The cafeteria plan rules of the Code provide a safe harbor from these rules.
Under the cafeteria plan rules, found in section 125, employees are allowed to be participants in a plan that allows
I.R.C. § 125(d)(1). The required information includes the following: specific description of benefits available, eligibility rules, procedures governing participant selections under plan, the manner in which employer contributions may be made, the maximum amount of compensation that may be contributed under the plan, and the plan year on which the plan operates. Prop. Treas. Reg. § 1.125-1(c). The cafeteria plan can reference other documents which contain specific plan benefits, instead of including a description of the benefits in the