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IRS increases maximum FMVs for employer-provided vehicles

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Tax Hot Topics newsletterIn Notice 2019-08 and Notice 2019-34, the IRS released the maximum fair market values (FMV) of employer-provided vehicles for use under two special valuation rules that apply in situations where an employer provides an employee with a vehicle that the employee can drive for personal use. In these instances, the employee must include the value of the personal use in his or her income.

There are two special valuation methods (among others) that can be used to calculate the value of an employee’s personal use of an employer-provided vehicle (provided certain requirements are met for each) – (1) the vehicle-cents-per-mile valuation rule under Treas. Reg. Sec. 1.61-21(e), and (2) the fleet-average valuation rule under Treas. Reg. Sec. 1.61-21(d). These special valuation methods are not permitted to be used if the FMV of the vehicle exceeds a specified base value on the first date the vehicle is made available to the employee.

The notices announce that these maximum FMVs for 2018 and 2019 for passenger automobiles, trucks and vans are $50,000 and $50,400 (as adjusted for inflation), respectively. These are significant increases from the applicable FMVs that applied before 2018 to reflect changes made by TCJA to the maximum annual dollar limitations on the depreciation deductions for passenger automobiles under Section 280F(a). If the FMV of the vehicle on the first day that it is made available for personal use is greater than the applicable amounts above, the value of the personal use must be determined using one of the other valuation methods detailed in Treas. Reg. Sec. 1.61-21.

Notice 2019-34 also announced that the IRS intends to amend the applicable regulations to reflect these changes (as well as other changes made by Tax Cuts and Jobs Act to the manner in which the maximums are adjusted annually for inflation) and to provide a special transition rule. If an employer did not qualify to use the special valuation rules before 2018 because a vehicle had a FMV in excess of the permitted maximums, the employer can adopt the special valuation rules for 2018 and/or 2019

based on the new FMVs for 2018 and 2019 taxable years, provided all of the requirements are satisfied when adopted.

Contacts:
Jeff Martin
Partner
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
T +1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
T +1 202 861 4107

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