Friday, February 12, 2016

Automobiles and Trucks Provided to Shareholder-Employees by Wholely-Owned Companies

Internal Revenue Code Section 61 provides that an employee (even an employee shareholder) whose employer (or wholely-owned company) has provided a vehicle for both business and personal use must include the value of that personal use in his or her income and wages as a fringe benefit. Yeah, you heard that right..."in their wages".  Technically, the employer is supposed to make a calculation (see below) under one or two authorized methods and adjust the employee's year-to-date wages for the value of the personal use of a company-provided vehicle. 

Employers and taxpayers may calculate the value of their personal use using several valuation methods, including the cents-per-mile valuation rule outlined in Reg. §1.61-21(e) or the fleet average valuation rule under Reg. §1.61-21(d).

Cents-per-mile valuation rule

Employers and employees arrive at the value of the fringe benefit provided in a particular calendar year by multiplying the standard mileage rate for the year by the total number of miles the vehicle is driven by the employee for personal purposes.

The standard business mileage allowance rate for 2016 is 54 cents-per-mile. Employers and employees may not use the cents-per-mile rule, however, if the fair market value of the vehicle exceeds the sum of the maximum recovery deductions under Code Sec. 280F(a) for the first five years of service. 

The maximum 2016 FMV amounts for use under this cents-per-mile valuation rule are:
  • $15,900 for a passenger automobile (down from $16,000 for 2015); and
  • $17,700 for a truck or van, including passenger automobiles such as minivans and sport utility vehicles, which are built on a truck chassis (up from $17,500 for 2015).
Fleet average valuation

For employers maintaining a fleet of at least 20 automobiles can value the FMV of each automobile as equal to the average value of the entire fleet. The fleet average value is the average of the FMV of all automobiles used in the fleet.

The maximum FMV amounts for use under this fleet-average valuation rule in 2016 are $21,300 for a passenger automobile (the same as for 2015) and $23,100 for a truck or van (up from $22,900 for 2015).

Taken from CCH Reference.