Rev. Proc. 2019-46 (Nov. 14, 2019)
Available at https://www.irs.gov/pub/irs-drop/rp-19-46.pdf
The IRS has updated its revenue ruling on the use of standard mileage rates to reflect changes made by the Tax Cuts and Jobs Act (TCJA). Prior to this update, the rules for using standard mileage rates and fixed and variable rate (FAVR) allowances—mileage allowances that use a flat rate or stated schedule combining periodic fixed and variable rate payments—were set out in Revenue Procedure 2010-51 (see our Checkpoint article). For taxable years after 2017 and before 2026, however, the TCJA suspended miscellaneous itemized deductions, and limited moving expense deductions and the exclusion for moving expense reimbursements to certain moves by members of the Armed Forces (see our Checkpoint article). Those TCJA changes have been explained and incorporated into other IRS guidance, including a supplement to the announcement of 2018 mileage rates (see our Checkpoint article), the 2019 mileage rate announcement (see our Checkpoint article), and Publications 15-B (Employer’s Tax Guide to Fringe Benefits) (see our Checkpoint article) and 521 (Moving Expenses) (see our Checkpoint article), but they were not reflected in Revenue Procedure 2010-51, the IRS’s principal guidance on the use of standard rates to substantiate the value of business use of an automobile.
Revenue Procedure 2019-46 modifies and supersedes Revenue Procedure 2010-51 in its entirety. The changes remove obsolete material, acknowledge the suspension of miscellaneous itemized deductions, and update examples to reflect more recent, higher mileage rates. The updated revenue procedure also clarifies the circumstances in which standard mileage rates may continue to be used by certain individuals for their business expenses because those expenses reduce their adjusted gross income (i.e., they are exclusions or “above-the-line” deductions). These individuals include qualifying performing artists, fee-basis state or local government officials, educators, and Armed Forces reservists. Provisions regarding the use of standard mileage rates for charitable and medical deductions, and setting the rules for computing FAVR allowances, are essentially unchanged. The revised discussion of moving expense deductions affirms that use of the standard mileage rate for claiming a moving expense deduction under Code § 217 is limited during the suspension period to members of the Armed Forces on active duty moving pursuant to a military order and incident to a permanent change of station. And a new provision warns that payment arrangements will fail to satisfy the accountable plan rules if payments are made regardless of whether an employee incurs (or is reasonably expected to incur) deductible business expenses or other, bona fide, nondeductible expenses. The updated revenue procedure is effective November 14, 2019, but the TCJA changes that it explains are effective for taxable years beginning after 2017 and before 2026.
EBIA Comment: The suspensions of miscellaneous itemized deductions, moving expense deductions, and exclusions for moving expense reimbursements have already taken effect and been explained by the IRS multiple times. Revenue Procedure 2010-51, however, was the IRS’s authoritative pre-TCJA description of the rules governing mileage rates and had to be updated. While the update seems to add little to what we already knew about the TCJA’s impact, it does add an interesting reminder about schemes to recharacterize income as nontaxable business expense reimbursements. The IRS has previously warned that such schemes generally fail because reimbursements resulting from recharacterization of income fail the business connection requirement under the accountable plan rules (see our Checkpoint article). The IRS appears to have inserted this new warning to discourage employers from using recharacterization to help employees avoid the TCJA’s adverse tax consequences. For more information, see EBIA’s Fringe Benefits manual at Sections II.B.1.a (“What Is the Difference Between an Exclusion and a Deduction”), II.E (“Employee Business Expense Reimbursements”), IV.F (“Employer Reimbursements for Business Use of an Employee’s Car”), XVII.D (“What Expenses Can Be Qualified Moving Expenses”), and XXI (“Travel Expense Reimbursements”). See also EBIA’s Cafeteria Plans manual at Section XX.L.8.b (“Mileage Rate for Traveling to Obtain Medical Care”).
Contributing Editors: EBIA Staff.