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, 84 Fed. Reg. 44258 (Aug. 23, 2019)
The IRS has proposed 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 (58 cents per mile for 2019—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. To align those thresholds with the increased depreciation deductions permitted under the Tax Cuts and Jobs Act, the IRS issued a notice substantially increasing both fair-market-value thresholds for 2018, and changing the way those thresholds are annually adjusted (see our Checkpoint article). Then, when it provided the inflation-adjusted thresholds for 2019, the IRS offered 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). Both notices indicated that the IRS planned to propose regulations consistent with the interim guidance.
As anticipated, the proposed amendments would align the regulations’ description of the maximum fair-market-value thresholds for using the fleet-average and vehicle cents-per-mile valuation methods with the depreciation deduction changes. The amended regulations would reflect the maximum vehicle values for 2018 and 2019 established by previous guidance, mirror the inflation-adjustment mechanism for determining the limit on depreciation deductions, and incorporate the transition relief for employers affected by the low maximum vehicle values in effect prior to 2018. Under that relief, employers may use the fleet-average valuation rule or the vehicle-cents-per-mile valuation rule for 2018 or 2019 (assuming all other conditions are met) if the fair market value of a vehicle did not exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019 (depending on the year of adoption). The cents-per-mile rule relief may also be used by employers that used the commuting valuation rule when a vehicle was first made available for personal use prior to 2018 and—because of the low value thresholds prior to 2018—could not switch to the cents-per-mile rule when use of the commuting valuation rule ended.
EBIA Comment: These proposed regulations closely follow the changes announced in previous guidance. A slight change in the wording of the transition rules, however, clarifies that the date on which a vehicle’s value must be determined is January 1, 2018, or January 1, 2019 (depending on the date the employer begins using the transition relief), not on the date prior to 2018 when the vehicle was first put to personal use. Like the previous guidance, the proposed regulations make clear that employers may use the higher fair-market-value thresholds and the transition relief pending the issuance of final 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.