If an employer provides an employee a vehicle for personal use, generally the value of the personal use must be included as employee income. In most cases, an employer uses the general valuation rule to determine the fair market value of an employee benefit. However, the IRS provides special valuation rules, the fleet average and the vehicle cents-per-mile valuation rules, to value an employee’s personal use of an employer-provided vehicle for income and employment tax purposes.
Prompted by the amendments made to the depreciation limitations by the Tax Cuts and Jobs Act of 2017 (TCJA), the IRS recently issued proposed regulations to update the limitations placed on the special valuation rules. The proposed regulations increase the maximum base fair market value of a vehicle for use of the special valuation rules to $50,000, effective for the 2018 calendar year. This change is consistent with the substantial increase in the dollar limitations on depreciation deductions made by TCJA, making the special valuation rules more widely available to employers who provide vehicles to employees for personal use.
Prior to this proposed regulation, the IRS issued Notice 2019-08 and Notice 2019-34 to provide interim guidance for calculating the price inflation adjustments to the maximum vehicle values for use with the special valuation rules.
The IRS issued these notices with the expectation that regulations would be proposed to provide further guidance, and the regulations would be consistent with the rules set forth in the notices. The notices provided taxpayers with the inflation-adjusted maximum fair market value. The expectation held true, as the proposed regulation provides a maximum fair market value of a vehicle for the special valuation rules as adjusted annually under section 280F(d)(7) of the Internal Revenue Code.
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Bill O’Malley – Senior Director
Katie Beaver – Associate