Page 598 - TaxAdviser_2022

CASE STUDY
CASE STUDY

Employer-provided and

company-owned vehicles

Editor: Employees generally must include in providing transportation to an employee
Trenda B. Hackett, CPA income the fair market value (FMV) of in connection with travel between the
their personal use (including commut- employee’s residence and principal place
ing) of an employer-provided auto of employment, except as necessary for
(Regs. Sec. 1.61-21(a)(1)). The value ensuring the safety of the employee
of this fringe benefit can be determined when unsafe conditions, as described
under either a general or special valuation in Regs. Sec. 1.61-21(k)(5), exist for
rule (assuming the requirements are met), the employee (Sec. 274(l)(1);
as explained later in this discussion. Regs. Sec. 1.274-14(b)). The final
If the personal use of an employer- regulations are silent on the employer’s
provided auto is de minimis, or if the em- deduction of the expenses for operat-
General or special ployee pays fair value for the personal use, ing a vehicle that has some personal
methods of valuing the employee will recognize no income use, even if the personal use portion
is minimal. Additional guidance on
(Regs. Secs. 1.132-6 and 1.61-21(b)).
employer-provided Under Sec. 132, a de minimis fringe whether any amount of commuting use
vehicles are available benefit is one that has such a small can be disregarded as de minimis would
value that accounting for it would
be welcome. In the interim, employers
for determining be impractical. In addition, Regs. Sec. that allow the personal use of an auto
the employer’s and 1.132-6(e)(2) provides that commuting that includes some commuting use
employee’s tax use of an employer-provided auto more should consider allocating a portion of
the vehicle’s operating expenses to that
than one day a month is not de minimis.
treatment of this One frequently contested issue personal use and not deduct those costs.
fringe benefit. regarding a shareholder/employee’s per- Taxing an employee’s
sonal use of an employer-provided auto-
mobile is the treatment of personal use personal use
as compensation (which is deductible Under the general valuation rule, the
by the C corporation) versus treatment value of an employer-provided auto
as a constructive dividend (which is not is what it would cost the employee to
deductible). The compensatory nature lease a comparable car for the same pe-
of the personal use of an auto should be riod the automobile in question is avail-
well documented in the corporate min- able to him or her. A cents-per-mile
utes if the corporation wants to deduct method cannot be used unless it can be
the auto expenses. shown that a comparable automobile
This case study has been adapted from could have been rented on a cents-per-
Checkpoint Tax Planning and Advisory Tax treatment of employer mile basis (Regs. Sec. 1.61-21(b)(4)).
Guide’s Closely Held C Corporations
topic. Published by Thomson Reuters, An employer is not allowed an income However, the employer can elect to use
Carrollton, Texas, 2022 (800-431-9025; tax deduction for any expense incurred, special valuation rules and can use different
tax.thomsonreuters.com). or any payment or reimbursement, for rules for different automobiles (assuming

56 November 2022 The Tax Adviser