The U.S. Treasury Department and IRS today released for publication in the Federal Register proposed regulations (REG-101378-19) regarding special valuation rules for employers and employees to use in determining the amount to include in an employee’s gross income for personal use of an employer-provided vehicle.
The proposed regulations [PDF 315 KB] reflect changes made by the U.S. tax law enacted in December 2017 as Pub. L. No. 115-97—the law that is often referred to as the “Tax Cuts and Jobs Act” (TCJA).
Comments and requests for a public hearing are due by October 22, 2019.
The TCJA increased the depreciation limitations for passenger automobiles placed in service after 2017. If bonus depreciation is not claimed, allowable depreciation is limited to $10,000 in year one; $16,000 in year two; $9,600 in year three; and $5,760 in all subsequent years.
These limitations are indexed for inflation for automobiles placed in service after 2018.
The IRS in early January 2019 issued Notice 2019-08 providing the maximum fair market value of a vehicle eligible to use the fleet-average and cents-per-mile special valuation rules. According to Notice 2019-08:
The IRS then in May 2019 released Notice 2019-34 to provide the maximum vehicle value for 2019 for purposes of the special valuation rules in Reg. section 1.61-21(d) and (e) (the automobile lease valuation and vehicle cents-per-mile valuation rules, respectively) that may be used to determine the value of the personal use of an employer-provided vehicle. Those valuations are as follows:
Notice 2019-34 further stated that the Treasury Department and IRS intend to revise Reg. section 1.61-21(e) to provide that if an employer did not qualify under Reg. section 1.61-21(e)(5) to adopt the vehicle cents-per-mile valuation rule on the first day on which a vehicle was used by an employee of the employer for personal use because, under the rules in effect before 2018, the vehicle had a fair market value in excess of the maximum permitted in accordance with Reg. section 1.61-21(e)(1)(iii), the employer could first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 tax year based on the maximum fair market value of a vehicle for purposes of the vehicle cents-per-mile valuation rule set forth in Notice 2019-08 or Notice 2019-34. Read TaxNewsFlash
As indicated by the preamble to the proposed regulations, the proposed regulations update the fleet-average and vehicle cents-per-mile valuation rules contained in existing regulations so as to align the limitations on the maximum vehicle fair market values for use of these special valuation rules with the changes made by the TCJA to the depreciation limitations in section 280F.
The preamble explains that consistent with the substantial increase in the dollar limitations on depreciation deductions under section 280F(a), the proposed regulations increase, effective for the 2018 calendar year, the maximum base fair market value of a vehicle for use of the fleet-average or vehicle cents-per-mile valuation rule to $50,000.
The maximum fair market value of a vehicle for purposes of the fleet-average and vehicle cents-per-mile valuation rule is adjusted annually under section 280F(d)(7). This annual adjustment will be calculated in accordance with section 280F(d)(7) as amended by the TCJA.
Furthermore, consistent with Notice 2019-34, the Treasury Department and IRS expect that the inflation-adjusted maximum fair market value for a vehicle for purposes of the fleet average and vehicle cents-per-mile valuation rules will be included in an annual notice published by the IRS that will provide the standard mileage rates for the use of an automobile for business, charitable, medical, and moving expense purposes and the maximum standard automobile cost for purposes of an allowance under a fixed and variable rate (“FAVR”) plan.
Consistent with Notice 2019-34, the following transition rules are included in the proposed regulations:
Today’s release clarifies that until the final regulations are published, taxpayers may rely on the guidance provided in the proposed regulations.
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