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.

Not Filing or Filing Forms 1099 Late

Late Filing Penalty

As the IRS continues to enforce tax compliance by small businesses, the added risk of not filling out Forms 1099 at year-end has grown significantly. 

The IRS now asks business owners (even sole proprietorships) two questions at tax filing time:

• Did the entity make any payments in its tax year that would require it file forms(s) 1099?
• If the answer to the above question is “yes,” did or will the entity file the required forms?

By responding to these questions, the business is indicating (under a penalty of perjury) that it has complied.  In reality, they are also questions that make the return itself either accurate and complete, or inaccurate.

   

Intentionally not providing a correct statement carries with it a penalty of $250 per 1099, with no maximum for the year. 

A late filing of the forms can lead to penalties ranging from $30 to $100 per 1099, with a maximum of $500,000 a year for any small business (defined below). The amount of the penalty is based on when the information returns were ultimately filed.  The business will be assessed as follows:

1. $30 per form 1099, if filed within 30 days of the due date; with a maximum penalty of $75,000
2. $60 per from 1099, if filed more than 30 days after the due date, but by August 1; with a maximum penalty of $200,000
3. $100 per for 1099, if filed after August 1; with a maximum penalty of $500,000. 

For purposes of the above penalties, a small business is defined as one having made $5 million or less in average annual revenues for the previous three tax years.