The IRS today released an advance version of Notice 2021-7 to provide temporary relief for employers using the automobile lease valuation rule to value an employee’s personal use of an employer-provided automobile for purposes of income inclusion, employment tax, and reporting.
The temporary relief is in response to the coronavirus (COVID-19) pandemic.
Notice 2021-7 [PDF 97 KB] provides that if certain requirements are satisfied, employers and employees that are using the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile can instead use the vehicle cents-per-mile valuation rule to determine the value of an employee’s personal use of an employer-provided automobile beginning as of March 13, 2020.
The notice provides that for 2021, employers and employees may revert to the automobile lease valuation rule or continue using the vehicle cents-per-mile valuation rule, provided certain requirements are met.
Today’s notice provides relief from the consistency rules in Reg. sections 1.61-21(d)(7) and 1.61-21(e)(5).
Notice 2021-7 provides that an employer using the automobile lease valuation rule for the 2020 calendar year may instead use the vehicle cents-per-mile valuation rule beginning on March 13, 2020, notwithstanding the consistency rules in Reg. section 1.61-21(d)(7) if, at the beginning of the 2020 calendar year, the employer reasonably expected that an automobile with a fair market value not exceeding $50,400 would be regularly used in the employer’s trade or business throughout the year, but due to the COVID-19 pandemic the automobile was not regularly used in the employer’s trade or business throughout the year.
For this purpose, the COVID-19 pandemic is considered to have commenced on March 13, 2020 (the date of the president’s emergency declaration). Therefore, employers that choose to switch from the automobile lease valuation rule to the vehicle cents-per-mile valuation rule in the 2020 calendar year must prorate the value of the vehicle using the automobile lease valuation rule for January 1, 2020, through March 12, 2020.
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