Tax Implications of Security Measures for C-Suite Executives

The security and protection of an organization’s high-profile employees should never be overlooked. Throughout our country’s history, people in the public spotlight have often faced more dangers from the public than others. It is not uncommon for elected officials, corporate leaders, entertainers or anyone in a public role to be concerned about threats to their safety and, in some cases, their lives. Hiring private security has sometimes been seen as the only course of action for these individuals and their families – but at great expense, sometimes prohibitively so.

Fortunately, specific tax regulations (Reg. §1.132-5(m)) are in place relating to the protection of C-Suite executives; and it can cover their families, homes and travel arrangements under certain circumstances.

The implementation is important for its tax implications, both for the executives as well as the company. Here is some critical information to keep in mind as your organization maps out a security plan for these employees.


Some fringe benefits are taxable to the employee and included as supplemental income on the employee’s Form W-2. There are a host of benefits that are excluded from income for generally recognized benefits. There are also rules related to highly compensated and key employees. However, without taking additional measures, most security fringe benefits end up as taxable income unless you carefully manage this process – then it can become a “working condition fringe benefit” and is non-taxable to the employee.

Working condition fringe benefits are generally non-taxable benefits for an employee and a deductible expense to an employer. Specific criteria must be met to qualify for a working condition fringe benefit, and these criteria are even more refined when pertaining to security issues. If you’re considering offering or enhancing security protection for certain employees, the following rules are critical for you to know. First, we’ll explain how comprehensive (and costly) a traditional program must be to qualify for differential tax treatment. Then we will explain the “Independent Security Study Exemption” – and it can be a game-changer.

Traditional tax treatment: “Bona Fide Business-Oriented Concerns”

The first step in offering security protection for key employees is to determine if a “bona fide business-oriented concern” exists for this protective measure. The following elements are required:

  • Analyze facts and circumstances. Each organization is different, and each situation is unique. A careful review of the facts and circumstances of an organization and its key employees is necessary. The facts and circumstances must establish a specific basis for concern for an employee’s safety, which can vary by time and location.
  • Analyze IRS regulations. The IRS offers factors to consider as well as an example of factors that indicate “a specific basis for concern regarding the safety of an employee.” The IRS regulations provide:“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 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.”
  • Review these concerns periodically. These threats need to be reviewed and updated on a regular basis.
  • Must be part of an “Overall Security Program.” Lastly, the organization must have an “overall security program,” explained below.

Overall Security Program

To meet the requirements for providing working condition fringe benefits to key employees, the organization’s Overall Security Program must include the following:

  • Security is provided 24 hours a day for the key employee.
  • The employee is protected at home, work and while commuting to and from their workplace. Note that if security is provided only at work, but not at home, that does not meet the requirements. (Exception noted below.)
  • A bodyguard, security vehicles, alarms and/or use of company planes are included in the program.

A Different Approach: The “Independent Security Study Exception”

Many organizations may determine it is too costly to provide a program that involves round-the-clock security at both home and work, and the other protections listed above. Fortunately, the tax law provides an exception: if an “Independent Security Study” is obtained, the organization will meet the requirements of an Overall Security Program. The key requirements for this study are as follows:

  1. An independent security consultant must perform a security study with respect to the employer and the specific employee (or a similarly situated employee);
  2. The security study must be based on an objective assessment of all the facts and circumstances;
  3. The security study must recommend that an overall security program on a 24-hour basis is not necessary, and this recommendation must be reasonable under the circumstances; AND
  4. The employer must apply the specific security recommendations contained in the security study to the employee on a consistent basis.

These stipulations highlight the importance of an Independent Security Study to document the appropriate level of security for employees. The monetary value of transportation-related security can potentially be excluded from income (as a “working condition fringe benefit”) provided the requirements of an Independent Security Study are met. For an organization to qualify for this tax savings: (1) conclusions from the Independent Security Study must be reasonable, AND (2) a bona fide business-oriented security concern must exist.


Here is an example from the IRS regulations (Reg. §1.132-5(m)) that addresses this issue.

“X Corp hires an independent security consultant to perform a security study with respect to its chief executive officer, E. Based on an objective assessment of all the relevant facts and circumstances, the consultant recommends that X Corp provide E with special security at his workplace and for ground transportation, but not for air transportation. If X Corp follows the consultant’s recommendations on a consistent basis, its security measures with respect to E’s workplace and ground transportation will be treated as a proper overall security program.

However, if X Corp only provided E with additional security while he commuted to and from work, it would not be following the consultant’s recommendations on a consistent basis, and its security measures would not be treated as an overall security program.”

Key Takeaways

Employee security is an important issue for many organizations today. Employers offering or considering offering security measures should not overlook the corresponding tax rules, because ignoring this can place a large burden on both the company and the key executive’s personal tax liabilities.

Arranging for an Independent Security Study is a critical role in evaluating the tax treatment of these important business considerations for the company and the executives concerned. Such a study has the potential to validate an organization’s security expenditures without imposing a fringe benefit tax liability on the person or persons being protected, or to expect your key executives to foot the tax bill on their own.

Sikich’s Workforce Risk Management group can walk you through these provisions, and if appropriate, schedule an Independent Security Study that can satisfy the exception. Contact us to learn more.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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