Regs could amend employer-provided vehicle rules

Tax Hot Topics newsletterThe IRS released proposed regulations (REG-101378-19) that adopt the guidance previously prescribed in Notices 2019-08 and 2019-34, which updated the maximum fair market value (FMV) of employer-provided vehicles to use two special valuation rules that apply when an employer provides an employee with a vehicle that is available 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). However, these special valuation methods cannot be used if the FMV of the vehicle exceeds a specified maximum amount on the first day the vehicle is made available to the employee.

The proposed regulations provide that the maximum FMVs for 2018 and 2019 for passenger automobiles, trucks and vans are $50,000 and $50,400 respectively (and adjusted in future years for inflation in accordance with the proposed regulations). These are significant increases from the applicable FMVs that applied before 2018 and were made to reflect changes 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 specified maximums, the value of the personal use must be determined using one of the other valuation methods detailed in Treas. Reg. Sec. 1.61-21.

The proposed regulations also adopt several special transition rules described in Notice 2019-34. For example, if an employer did not qualify to use the two special valuation rules before 2018 because a vehicle had an FMV in excess of the specified 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.

Taxpayers may rely on the guidance provided in the proposed regulations until final regulations are published. Any comments on the proposed regulations are due by Oct. 22, 2019.

Jeff Martin
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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