Page 30 - Employers Tax Guide to Fringe Benefits

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
specialized equipment in a trade or business other than Figure the annual lease value for each later 4-year pe-
yours. riod by determining the FMV of the automobile on January
Neither the amount the employee considers to be the 1 of the first year of the later 4-year period and selecting
value of the benefit nor your cost for either buying or leas- the amount in column (2) of the table that corresponds to
ing the automobile determines its FMV. However, see the appropriate dollar range in column (1).
Safe-harbor value next. Using the special accounting rule. If you use the
Safe-harbor value. You may be able to use a special accounting rule for fringe benefits discussed in
safe-harbor value as the FMV. section 4, you can figure the annual lease value for each
For an automobile you bought at arm's length, the later 4-year period at the beginning of the special account-
safe-harbor value is your cost, including sales tax, title, ing period that starts immediately before the January 1
and other purchase expenses. This method isn’t available date described in the previous paragraph.
for an automobile you manufactured. For example, assume that you use the special account-
For an automobile you lease, you can use any of the ing rule and that, beginning on November 1, 2019, the
following as the safe-harbor value. special accounting period is November 1 to October 31.
• The manufacturer's invoice price (including options) You elected to use the lease value rule as of January 1,
plus 4%. 2020. You can refigure the annual lease value on Novem-
ber 1, 2023, rather than on January 1, 2024.
• The manufacturer's suggested retail price minus 8%
(including sales tax, title, and other expenses of pur- Transferring an automobile from one employee to
chase). another. Unless the primary purpose of the transfer is to
• The retail value of the automobile reported by a na- reduce federal taxes, you can refigure the annual lease
value based on the FMV of the automobile on January 1
tionally recognized pricing source if that retail value is of the calendar year of transfer.
reasonable for the automobile. However, if you use the special accounting rule for
Items included in annual lease value table. Each an- fringe benefits discussed in section 4, you can refigure the
nual lease value in the table includes the value of mainte- annual lease value (based on the FMV of the automobile)
nance and insurance for the automobile. Don't reduce the at the beginning of the special accounting period in which
annual lease value by the value of any of these services the transfer occurs.
that you didn't provide. For example, don't reduce the an-
nual lease value by the value of a maintenance service Prorated Annual Lease Value
contract or insurance you didn't provide. You can take into
account the services actually provided for the automobile If you provide an automobile to an employee for a continu-
by using the general valuation rule discussed earlier. ous period of 30 or more days but less than an entire cal-
endar year, you can prorate the annual lease value. Fig-
Items not included. The annual lease value doesn't ure the prorated annual lease value by multiplying the
include the value of fuel you provide to an employee for annual lease value by a fraction, using the number of days
personal use, regardless of whether you provide it, reim- of availability as the numerator and 365 as the denomina-
burse its cost, or have it charged to you. You must include tor.
the value of the fuel separately in the employee's wages.
You can value fuel you provided at FMV or at 5.5 cents If you provide an automobile continuously for at least
per mile for all miles driven by the employee. However, 30 days, but the period covers 2 calendar years (or 2 spe-
you can't value at 5.5 cents per mile fuel you provide for cial accounting periods if you’re using the special ac-
miles driven outside the United States (including its pos- counting rule for fringe benefits discussed in section 4),
sessions and territories), Canada, and Mexico. you can use the prorated annual lease value or the daily
If you reimburse an employee for the cost of fuel, or lease value.
have it charged to you, you generally value the fuel at the
amount you reimburse, or the amount charged to you if it If you have 20 or more automobiles, see Regulations
was bought at arm's length. section 1.61-21(d)(6).
If you have 20 or more automobiles, see Regulations If an automobile is unavailable to the employee be-
section 1.61-21(d)(3)(ii)(D). cause of his or her personal reasons (for example, if the
If you provide any service other than maintenance and employee is on vacation), you can't take into account the
insurance for an automobile, you must add the FMV of periods of unavailability when you use a prorated annual
that service to the annual lease value of the automobile to lease value.
figure the value of the benefit.
You can't use a prorated annual lease value if the
4-year lease term. The annual lease values in the table ! reduction of federal tax is the main reason the au-
are based on a 4-year lease term. These values will gen- CAUTION tomobile is unavailable.
erally stay the same for the period that begins with the first
date you use this rule for the automobile and ends on De-
cember 31 of the fourth full calendar year following that
date.

Page 28 Publication 15-B (2020)