Tax Code Creates Lethal Vulnerability for Corporate Leaders

Dave Johnson and Gale Ericksen, ITG Consultants

Tax Code Creates Lethal Vulnerability for Corporate Leaders

U.S. tax codes don’t often have life-or-death consequences, but one section creates a potentially lethal vulnerability for some of America’s corporate leadership. This troublesome section deters persons who would be wise to employ executive security services from using them. For that reason, it is imperative to understand the code and its unintended consequences and to seek out solutions for those most at risk.

The issue

            The tax code section in question is 26CFR 1.132-5m(2)(i) (A) & (B). The potentially lethal issue lies in the portion that deals with working condition fringes or “fringe benefits.” Under section (2)(i), the tax code states: “a generalized concern for an employee's safety is not a bona fide business-oriented security concern” and thus protective services would be a taxable benefit. To be exempted from taxation, the need for services must be business-oriented, as defined below:

Section (2)(i)(A): A threat of death or kidnapping of, or serious bodily harm to, the employee or a similarly situated employee because of either employee's status as an employee of the employer; or

Section (2)(i)(B): A recent history of violent terrorist activity (such as bombings) in the geographic area in which the transportation is provided, unless that activity is focused on a group of individuals which does not include the employee (or a similarly situated employee of an employer), or occurs to a significant degree only in a location within the geographic area where the employee does not travel.

            Many executives of corporations that contribute significantly to the United States’ Gross Domestic Product (GDP) have established executive security protection that meets the requirements of the code. Frequently, however, they aren’t using the protection for travel between home and work due to concern the IRS will consider it a taxable fringe benefit.  

The analysis

            There are a myriad of issues pertaining to the tax code and its application. First, security measures are used when transporting executives between the office and other work-related locations, when warranted and especially when their transit is time- and place-predictable. Yet travel between home and work is equally, if not more, predictable.

            While Section (2)(i) states that general concern for an employee's safety isn’t a “business-oriented security concern,” all negative incidents that directly affect the Chief Executive Officer have adverse impact their publicly traded companies (e.g. , Steve Jobs’ illness and Apple’s stock price following the announcement).

            Yet the most complicated part of this analysis lies in Section (2)(iii)(A) and the use of the word “threat” as the determinant for non-taxable security support. Here’s why:

  1. The word “threat” isn’t defined in the code, making its application ambiguous. More than one type of threat can be made. The Critical Incident Response Group identifies four kinds of threats:
  • Direct threats are the most explicit threats, noting specific action to be taken against a specific target, and perhaps on a specific timeline.
  • Indirect threats are far less explicit, implying a possibility or ability to cause harm.
  • Veiled threats lack definite terms and are meant to cause the target concern by lacking specific meaning.
  • Conditional threats pose action against the target that will occur if specific terms or demands aren’t met.

The code does not specify what kind of threat is required to qualify for security protection without incurring taxable benefits.

  1. Threats aren’t always articulated, publicly or privately. John Hinckley didn’t articulate a threat to kill President Regan before shooting him. Neither did the 2013 Boston Marathon bombers make a public threat before they carried out their nefarious act.

            Basing the tax exemption on the condition of known, articulated threats (not generalized safety concerns) doesn’t acknowledge the very real exposure executives face daily, nor the related negative impact an adverse happening would have on their organizations and the U.S. economy.

Historical perspective with lethal consequences

            Attackers look for a predictable time and place to target their would-be victims, leveraging their routines against them. Departure for work from home is the most predictable routine of a person’s life. Yet the tax code discourages using trained security professionals and security drivers during this predictable, and therefore vulnerable, portion of the day.

            As it relates to location, studies of successful assassination and kidnapping plots indicate the greatest exposure occurs within approximately 400 yards of the victim’s home at a “choke point”—a portion of a route that must be taken without variation. Choke point vulnerabilities are easily identified through rudimentary surveillance efforts—even remotely via tools such as Google Earth.

Although these vulnerabilities don’t meet the tax code’s current criteria of being “specific, articulated and credible threat(s)”, the ease with which attackers can identify and exploit them makes them too great to ignore. Common sense demands prudent security measures be taken to mitigate them.

The solutions

            The most effective solution to remediate the unintended consequence of the code is to revise it. Such change would require lobbying and will not come rapidly. In the meantime, self-applied security measures can be taken:

  • Conduct a risk assessment. If any company employees fit the profile of a potential victim of a planned, targeted attack, obtain security support regardless of the tax consequences. Lobby the employer to assume the financial burden and request they make the requisite withholding payments.
  • Analyze routes and terrain. Determine what choke points exist and whether terrain features allow an assailant to loiter in the area without arousing suspicion.
  • Stay off the mobile phone. Pay attention to surroundings near the identified choke point. Watch the behavior of other people; if they cause concern, retreat.
  • Establish alternatives. Identify different routes to work and vary departures times. Doing so may mean the driveway or front door becomes a choke point; look outside before exiting the home and report any suspicious activity to the authorities.
  • Seek quality evasive driver training. Learn the skills trained security staff use to protect those they drive. Check program credentials and speak with former clients.
  • Seek quality, surveillance detection training. To conduct a planned, targeted attack, an attacker will visit the site and employ surveillance. If caught and reported, the attack will likely be deterred.

            The current tax code unintentionally deters many executives from employing security services despite the fact that their lives may be endangered on a daily basis. Hiring protective services may well be worth any additional taxes incurred. Corporate leaders who could be targeted by a planned attack would be wise to at least ready themselves to face such situations with education, training, and awareness.

About the Authors

ITG Consultants, Inc., a certified Service Disabled Veteran-owned small business based in Pennsylvania, provides training, consulting, and security management services. David L. Johnson, president of ITG, is certified in Homeland Security – Level V, by the American Board for Certification in Homeland Security, and previously served on its Executive Advisory Board. He also serves as Chairman of The American Board for Certification in Dignitary and Executive Protection. Gale R. Ericksen, vice-president of ITG, is a Certified Protection Professional by the American Society for Industrial Security. Combined, they have more than 70 years of experience in international law enforcement, executive and dignitary protection, and training. For more information, or a no-obligation discussion, visit our website at or call (866) 904-4ITG.