Mike is working his way through college and trying to make ends meet. Tara, a friend, is graduating soon and tells Mike about a really great job opportunity.

She is the onsite manager for an apartment complex catering to students. The job entails working in the office for about 10 hours a week, collecting rent each month, and answering after-hours emergency calls. The owner of the apartment complex requires the manager to live onsite as a condition of employment. The pay is $10 per hour, plus a rent-free apartment (worth about $500 per month).

Tara then tells him the best part: the rent-free apartment is tax-free. Knowing that you are a tax student, Mike asks you if the rent-free apartment is really tax-free or if Tara is mistaken. Explain to Mike whether the compensation for the apartment is really a nontaxable fringe benefit.