For Immediate Release:

Wednesday, August 7, 2013

Many times employees will utilize a company provided vehicle for personal use. The IRS will review a company?s records during an audit to verify that this personal use is being calculated and added to the taxable income of the employee.

There are two methods a company can use to determine the taxation of the employees personal use of a company vehicle.

1. General Valuation Standard ? This is the fair market value of the vehicle if the employee would have to pay for the vehicle in an ?arm?s length? transaction.  This method is the most difficult to prove since there are many ways to determine ?fair market value?.
2. Special Valuation Method ? There are three simplified ?special valuation methods? for arriving at the ?fair market value? of the vehicle use.
   1. annual lease value (based on a table produced by the IRS)
   2. cents per mile method
   3. commuting valuation method

Here is how the cents per mile method would be calculated. Under this method the employee would need to keep a record of all miles driven. The miles driven for personal use would be multiplied by the federal standard mileage rate. The IRS wants mileage records to include beginning and ending odometer readings to be considered a valid mileage record. For 2013 that federal standard mileage rate is .565 per mile.
To utilize the cents per mile calculation there are five considerations:

1. The employer must reasonably expect the vehicle will be regularly used in its business for the entire year.
2. The vehicle will be driven by employees for at least 10,000 miles in the calendar year
3. The vehicle is regularly used in the employers business.  The two standards for regular use are the vehicle is used at least 50% of the time in the employers business OR it is used to transport at least three employees to and from work as an employer sponsored car pool.
4. The cents per mile cannot be utilized for vehicles defined as ?luxury cars?. This is based on vehicle value scheduled in the IRS code.
5. The .565 per miles includes fuel. If the employer does not use fuel the employer can utilize .55 per mile.

IRS Publication 15b addresses the taxation of fringe benefits. You can find this publication at http://www.irs.gov/pub/irs-pdf/p15b.pdf.
If you would like more information on the taxation of personal use of company vehicles under the annual lease value or commuting valuation method contact Gary at 615-542-1919 or gary@IlluminareGroupInc.com.
IRS CIRCULAR 230 — DISCLOSURE NOTICE: IRS Circular 230 regulates written communications
about federal tax matters between tax advisors and their clients. To the extent the preceding correspondence and/or any attachment is a written tax advice communication, it is not a full ?covered opinion?. Accordingly, this advice is not intended and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS regarding the transaction or matters discussed herein.