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IRS Finalizes Amendments to Fleet-Average and Vehicle Cents-Per-Mile Regulations

EBIA  

EBIA  

Determination of the Maximum Value of a Vehicle for Use With the Fleet-Average and Vehicle Cents-Per-Mile Valuation Rules, 26 CFR Part 1, 85 Fed. Reg. 6424 (Feb. 5, 2020)

Available at https://www.govinfo.gov/content/pkg/FR-2020-02-05/pdf/2020-02158.pdf

The IRS has finalized amendments to the regulations that set the maximum fair market value of vehicles that may use the fleet-average valuation rule and the vehicle cents-per-mile rule. The fleet-average valuation 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. The cents-per-mile rule determines the value of personal use by multiplying the business standard mileage rate (57.5 cents per mile for 2020—see our Checkpoint article) by the number of miles driven for personal purposes. Each rule is available only if the vehicle’s fair market value does not exceed an inflation-adjusted threshold. In 2018, the IRS substantially increased the thresholds for both rules to conform them to the increased depreciation deductions permitted under the Tax Cuts and Jobs Act (see our Checkpoint article). In 2019, the IRS set the 2019 thresholds and added relief for employers that were unable to use the fleet-average rule or the vehicle cents-per-mile rule because of the low maximum vehicle values in effect prior to 2018 (see our Checkpoint article). Later in 2019, the IRS proposed amendments to the regulations to formalize its interim guidance (see our Checkpoint article).

The final regulations, which adopt the proposed amendments without substantive change, align each rule’s description of the fair-market-value threshold with the depreciation deduction changes; include the maximum vehicle values for 2018 and 2019; incorporate the new inflation-adjustment mechanism; and provide the previously announced transition relief for employers that were adversely affected by the low maximum vehicle values in effect prior to 2018.

EBIA Comment: These final regulations complete the process of conforming the fleet average valuation rule and the vehicle cents-per-mile rule to the new depreciation rules. The final regulations are effective and applicable February 5, 2020, but that date has little practical significance because the final regulations do not materially differ from existing interim guidance and proposed regulations. 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.

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