IRS proposes using NAICS to determine lines of business for certain fringe benefit exclusions

February 1, 2026 - 03:52

The Internal Revenue Service has put forward a new proposal to update how it defines specific lines of business for determining eligibility for certain fringe benefit exclusions. The key change involves replacing an outdated reference manual with the modern North American Industry Classification System (NAICS).

Currently, regulations rely on the 1974 edition of the Standard Industrial Classification (SIC) manual to identify distinct lines of business for rules governing employer-provided transportation, parking, and other benefits. The IRS notes this manual is obsolete, as it does not reflect the vast economic and technological shifts in the U.S. economy over the past five decades.

The proposed shift to NAICS, a system already widely used for federal statistical purposes and other areas of tax administration, aims to bring clarity and contemporary relevance to the process. This update would help employers more accurately classify their operations when applying tax rules for fringe benefits. The move is intended to reduce administrative burden and align with current industry structures, ensuring the regulations function as intended in today's business landscape. The proposal is now open for public commentary as the agency seeks to finalize the updated guidance.