IRS Notice 2019-34 (May 8, 2019)
Available at https://www.irs.gov/pub/irs-drop/n-19-34.pdf
The IRS has announced the inflation-adjusted maximum fair market values for determining whether an employee’s personal use of an employer-provided vehicle in 2019 can be valued using the vehicle cents-per-mile rule or the fleet-average valuation rule. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate (58 cents per mile for 2019—see our Checkpoint article) by the number of miles driven for personal purposes. The fleet-average rule allows employers operating a fleet of 20 or more qualifying automobiles to use an average annual lease value for every qualifying vehicle in the fleet when applying the automobile annual lease valuation rule. Each rule is available only if the vehicle’s fair market value does not exceed an inflation-adjusted threshold. Recent IRS guidance announced a substantial increase in both thresholds for 2018 as well as a change in the way those thresholds are annually adjusted (see our Checkpoint article).
For vehicles (including vans and trucks) first made available to employees for personal use in calendar year 2019, the maximum vehicle value under both rules is $50,400. The notice explains that under planned amendments to the applicable regulations (see our Checkpoint article), these maximum values will be identical to the maximum standard automobile cost that determines eligibility to set reimbursement allowances under a fixed and variable rate (FAVR) plan—an alternative to the business standard mileage rate. The maximum standard automobile cost for using FAVR rates has historically been announced in the same guidance as the standard mileage rates for business, charitable, medical, and moving expense purposes, and in the future, the IRS expects that guidance to include the maximum value for the cents-per-mile and fleet-average rules as well.
The notice offers limited relief for employers that were unable to use the vehicle cents-per-mile rule or the fleet-average rule because of the low maximum values in effect prior to 2018. An employer may first adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable year based on the maximum vehicle value established for 2018 ($50,000) or 2019 ($50,400), as applicable. Similarly, an employer that could not use the fleet-average valuation rule prior to 2019 because the pre-2018 value threshold was exceeded may adopt the fleet-average rule for 2018 or 2019 if the requirements for that year are met using the applicable maximum value. The notice reaffirms that the flexible guidelines in Announcement 85-113 may be used to determine when personal use income is deemed paid. Consequently, employers may use the rules in that guidance, the adjustment process, or the refund claim process to correct any overpayment of federal employment taxes resulting from application of the notice’s transition relief.
EBIA Comment: Setting identical maximums for valuing personal use on a cents-per-mile basis, valuing personal use using fleet-average values, and determining allowances under a FAVR plan—and publishing that value as part of the IRS’s annual mileage rate announcement—makes these rules both consistent with recent statutory changes in the dollar limitations on depreciation deductions and easier to work with. The IRS plans to amend its regulations to conform to this guidance and has asked for comments. Taxpayers may rely on the interim guidance in this notice until final regulations are issued. For more information, see EBIA’s Fringe Benefits manual at Sections IV.C (“How Do the Working Condition Fringe Rules Apply to Company Cars?”) and IV.F (“Employer Reimbursements for Business Use of an Employee’s Car”).
Contributing Editors: EBIA Staff.