We are fortunate that Alarm Industry Expert Accountant Mitch Reitman reads these emails and is willing to share his knowledge.  Honestly, the question made me sleepy and Mitch's response finished me off.  But for those who want to be in the know about accounting and taxes, here's Mitch answering our "bat signal":  [the original question is below]
    Yes Commissioner Gordon (Kirschenbaum) I did see the Bat Signal.  This is an interesting question and brings up a number of issues regarding compensation, fringe benefits, and taxes.  When it comes to income and deductions the IRS has a “logic” that in some ways tracks Newton’s Third Law (for every action there is a reaction) – for every deduction there is usually income - with the difference being that Newton’s Law has immediate results, whereas tax rules don’t have a reaction until the IRS catches you (at which time the reaction is more painful than a rotten apple falling on your head), and the Tax Code isn’t always logical.  This is also a great example of how even a very simple situation that makes perfect business sense can become very complicated thanks to our friends in Washington.  This response is very general and situations may vary, but, based on the information in the email, this is the tax treatment:
                 1. Free or discounted monitoring to employees – The Tax Code defines this type of benefit as an employee fringe benefit and dictates that the value of Discounted Services is the difference between what the Employer normally charges non-employee customers (less up to 20%) and the amount that the employee pays for the service.  In the case of the discounted monitoring the employer would include $263.90 ($479.88 less 20% less the $120 that the employee paid) in the employee’s income for the cellular alarm service.  The “logic” behind this is to keep companies from reducing their employees’ salaries and paying them in goods and services.  The $263.90 should be included on the employee’s Form W-2.  I am sure that no security company is doing this, but this is what the Tax Code says to do.
                  2. f the Company bills the employee for the full amount and then issues a credit, It would not make any difference.  The Company has to have income from this situation (Newton’s Law) before it has a deduction, and if the employee never pays (and is never expected to pay) the $479.88 the company has no revenue other than the $120 that the employee pays. If the Company bills the employee for $479.88, then credits off $359.88, it has income of $120 (the difference between the amount billed and the amount credited).  If the company uses cash basis, as many do, only the $120 that the employee pays is income to the Company and it is only income in the year that the employee pays it  Of course the cost of providing the service is deductible to the company as an ordinary business expense. Your reader is correct about reminding the employee of the value of the service, and, as his suggested method has the same tax consequences of simply billing the employee $120, it may be preferred from a common sense prospective. 
                        There are additional issues regarding the way that the Company books the compensation expense and the value of the services but this is too much to cover in a short email.  I hope that this has not caused steam to come out of too many readers’ heads, but this is an example of how complicated the Tax Code can be.  The only legal advice that I would give on this topic is to make sure that you have a great monitoring agreement with the employee (I am sure that Ken can help with this) because employees don’t stay employees forever, their insurance companies, guests, family members, etc… aren’t your employees, and you need to treat the monitoring relationship just as you would treat a “regular” customer. 
              There is a way to avoid some of the pain and suffering above and if your reader was our client we could show him/her a better way to treat this situation.
Mitch Reitman
Reitman Consulting Group, Inc.
Fort Worth, TX 76133
    We purchased your all in one form back in 2012. I guess you have just updated your all- in-one form and we are considering updating. 
    We have a questions in regards to cancelling monitoring for customers whose houses were foreclosed on or they declared bankruptcy. In either case houses were transferred to financial institutions. How can we cancel monitoring in those case without exposing ourselves to a potential lawsuit in case a house burns down?
    Thank you for your help in advance.
Aleksandra S
    You owe no duty to the finance company, bank, buyer at a foreclosure sale, the bankruptcy trustee or a buyer of the property in bankruptcy court.  Don't create any duty by performing any security services once you know your subscriber is no longer your end user.  Whoever your new end user is must sign a contract, your contract [well not yours because yours is now outdated - but the new one you're going to buy now]. 
    Once your end user stops paying you,  the contract is in default, and you can terminate.  You can default the panel to delete communication.  If the alarm system belongs to the end user then don't disable it, just terminate monitoring and of course any repair or inspection service.  When the new end user calls, you are not obligated to provide any information.  If the new end user wants any information or service then a new contract is required.  Want to do a good deed and give something, even just information, for free and without a contract?  No problem.  Just remember.  No good deed goes unpunished.
    This question is more of an accounting question than a legal question but you’ve recently had some accounting questions in your daily email so hopefully someone with more knowledge than myself can weigh in on this.
    One of the employee benefits we offer to all employees is free (over phone lines) or discounted (using cellular or interactive services) monitoring. The way we’ve done it for years is the employee signs a monitoring contract for either $0/year or the discounted amount.  For example if our published residential monitoring rate is $39.99/mo. ($479.88/yr.) for monitoring over cellular we may give the employee a monthly monitoring rate of $10/mo. ($120/yr.) to cover our costs for the cellular and interactive service.
    Using the example above someone recently mentioned to me that they provide employee monitoring by billing their employees annually for the full published rate and then the employee brings in their invoice and they credit off $359.88 ($479.88-$120.00).  The reason they claimed they are doing this is so they can show an actual dollar amount for the employee benefit that allows them write it off.
    Is that method common in the alarm industry where monitoring is provided as an employee perk? Do we have to do it in that manner in order to take advantage of any write off available to us or can I still write off the $359.88 per employee per year as a benefit? I’m not an accountant so I’m curious what tax or other benefits should we be taking advantage of by offering this employee benefit?  Is either method preferable from a legal standpoint as long as we are getting a signed monitoring contract from the employee? 
    I like the invoice and credit option vs. the way we’ve been doing it because it reminds the employee of the benefit they are receiving and there is no chance to bill the reduced rate if an employee leaves our employment. The only downside I can see is there is a little more administrative work involved in crediting off the amount once a year but I wanted to make sure there wasn’t any other downside I may be missing.
    If you use this in your newsletter/email please keep me anonymous.
Thank you.