Insights and Resources
Temporary relief to calculate personal use of employer-provided cars
TAX ALERT |
Authored by RSM US LLP
The IRS published Notice 2021-7 (the Notice) providing temporary relief for employees and employers using the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile includible in taxable income.
In a typical year a company using the automobile lease valuation method would calculate an amount to be included in gross income by determining the annual lease value of the automobile and then adjusting it by the percentage of business and personal miles driven by the employee. Furthermore, generally once the employer and employee have chosen a valuation methodology for an employer-provided vehicle, they must apply it consistently and not switch to another method later.
Due to business interruptions caused by the COVID-19 pandemic in 2020, there was significantly less business travel during 2020. Thus, the business usage is likely a much smaller percentage than in a typical year, which would require a larger amount to be included in an employee’s income for 2020 from the annual lease value. In recognition of this likely inaccurate result, the Notice provides that companies may ignore the consistency rules and instead switch to the vehicle cents-per-mile valuation beginning March 13, 2020, as long as certain requirements are satisfied.
To qualify for this temporary relief, the employer must have reasonably expected that an automobile with a fair market value not exceeding $50,400 would have been regularly used in the employer’s trade or business throughout the year, but that due to the COVID-19 pandemic, the automobile was not regularly used in the employer’s trade or business. Any qualified employer that chooses to switch to the vehicle cents-per-mile valuation rule for the 2020 calendar year must prorate the value of the vehicle using the automobile lease valuation rule for Jan. 1, 2020, through March 12, 2020. Then, as of March 13, 2020, employers may begin using the vehicle-cents-per-mile valuation rule.
Looking forward to the rest of 2021, employers and employees may revert to the automobile lease valuation rule or continue to use the vehicle cents-per-mile valuation. The consistency rules will apply as if the vehicle was first placed in service on Jan. 1, 2021. Employers with employer-provided vehicles should carefully review this guidance and consider any implications for 2020 taxable noncash fringe benefits according to guidance referenced in the Notice.
Call us at +1 213.873.1700, email us at firstname.lastname@example.org or fill out the form below and we'll contact you to discuss your specific situation.
This article was written by Anne Bushman, Katie Beaver and originally appeared on 2021-01-06.
2020 RSM US LLP. All rights reserved.
The information contained herein is general in nature and based on authorities that are subject to change. RSM US LLP guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. RSM US LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein. This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer.
RSM US Alliance provides its members with access to resources of RSM US LLP. RSM US Alliance member firms are separate and independent businesses and legal entities that are responsible for their own acts and omissions, and each is separate and independent from RSM US LLP. RSM US LLP is the U.S. member firm of RSM International, a global network of independent audit, tax, and consulting firms. Members of RSM US Alliance have access to RSM International resources through RSM US LLP but are not member firms of RSM International. Visit rsmus.com/about us for more information regarding RSM US LLP and RSM International. The RSM logo is used under license by RSM US LLP. RSM US Alliance products and services are proprietary to RSM US LLP.
Vasquez & Company LLP is a proud member of the RSM US Alliance, a premier affiliation of independent accounting and consulting firms in the United States. RSM US Alliance provides our firm with access to resources of RSM US LLP, the leading provider of audit, tax and consulting services focused on the middle market. RSM US LLP is a licensed CPA firm and the U.S. member of RSM International, a global network of independent audit, tax and consulting firms with more than 43,000 people in over 120 countries.
Our membership in RSM US Alliance has elevated our capabilities in the marketplace, helping to differentiate our firm from the competition while allowing us to maintain our independence and entrepreneurial culture. We have access to a valuable peer network of like-sized firms as well as a broad range of tools, expertise and technical resources.
For more information on how Vasquez & Company LLP can assist you, please call +1 213.873.1700.
Subscribe to receive important updates from our Insights and Resources.