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retail price (including sales tax, title, have to be included in income in ad-
One frequently and other purchase expenses) less 8% dition to the ALV. The value of fuel
provided in-kind is its FMV, based on
to determine the FMV for calculating
contested issue the ALV. Alternatively, the ALV may facts and circumstances. Alternatively,
regarding a be determined by reference to the au- fuel provided in-kind can be valued at
tomobile’s retail value as reported by a
5.5 cents per mile for miles driven in
shareholder/ nationally recognized pricing source the United States, Canada, or Mexico.
employee’s (Regs. Secs. 1.61-21(d)(5)(ii)(B), (C), The value of fuel costs reimbursed
and (5)(iii)). In addition, the employer
by or charged to the employer is the
personal use of an can use the manufacturer’s invoice price amount reimbursed or charged if the
employer-provided (including options) plus 4% as an esti- fuel was purchased at arm’s length
(Regs. Sec. 1.61-21(d)(3)(ii)).
mate of FMV (Notice 89-110).
automobile is Valuation of the personal use of an
the treatment of Example: N Corp. leases a car and automobile is based on availability, not
actual use. Thus, if the automobile was
furnishes it to the assistant sales
personal use as manager. The manufacturer’s sug- available for personal use for the whole
compensation. gested retail price (i.e., the “sticker year, including the employee’s two-
price”) of the car is $35,500. Sales
week vacation period, the employee
tax and other fees if the auto were must include in income the total ALV
purchased for the suggested retail amount. If this method is used and the
the requirements for each method are met) price would be $3,250. N can use automobile is continuously available to
(Regs. Secs. 1.61-21(c)(2)(iii) and (c)(3)). a safe harbor FMV of $35,650 for the employee for less than one year but
Thus, the employer could use the automo- the leased auto, as shown in the for at least 30 days, the ALV is pro-
bile lease value (ALV) method (described chart “Determining Safe Harbor rated based on the period the vehicle
below) to account for an automobile FMV.” was available (i.e., number of days of
provided to one employee and the special availability ÷ 365 × ALV).
commuting value method (described Alternatively (or if the auto was If the automobile is used for less
below) for another employee’s automobile. previously owned), N could use the re- than 30 days (i.e., continuous availabil-
These special methods can be beneficial tail price of the leased auto as reported ity is less than 30 days), the value of
because they can reduce the amount of tax- in a nationally recognized publication the personal use is based on the daily
able income attributable to an employee’s or website (e.g., the National Auto- lease value (the ALV multiplied by
personal use of a company-provided auto. mobile Dealers Association) or the four times the number of days of avail-
manufacturer’s invoice price (including ability divided by 365). The employer
Using the ALV method options) plus 4%. may make an election to treat it as if it
The ALV rule (also known as the The ALV includes maintenance were available for 30 days if that treat-
table-value method) uses a vehicle’s and insurance costs but not fuel. If ment results in a lower valuation
annual lease value as the FMV of the fuel is provided by the employer for (Regs. Secs. 1.61-21(d)(4)(i), (ii),
total annual use of a company auto to personal use, the value of the fuel will and (iii)).
determine the amount of an employee’s
additional compensation for personal
use of an auto. The ALV is determined Determining safe harbor FMV
from a table provided by the IRS in
Regs. Sec. 1.61-21(d)(2)(iii) and is
Manufacturer’s suggested retail price $35,500
based on the automobile’s FMV on the
first date the automobile is available to Sales tax and other fees 3,250
the employee for personal use. Cost can
Total 38,750
be used as FMV only if the automo-
bile was purchased in an arm’s-length
Less 8% (3,100)
transaction. If the employer leases rather
than owns the automobile, the employer Safe harbor FMV $35,650
can use the manufacturer’s suggested

www.thetaxadviser.com November 2022 57