Company Vehicles – Are You Meeting IRS Requirements? By: Joseph M. Press, CPA, CFE Date: 11/19/09 It is quite common for banks to provide vehicles to its executives.  What may not happen quite as often is the proper tax treatment of this fringe benefit.  It does require some additional record keeping on the part of the bank and the employee might not be too thrilled at having additional moneys tacked onto his/her W-2.  However, the IRS has specific rules regarding how to quantify the benefit to the employee, which figures into the employee’s wages ending up in their W-2.  As we approach the end of the year, now is a good time to review your bank’s policies regarding bank owned vehicles driven by employees.  The IRS quantifies the benefit of a vehicle based upon the auto’s fair market value as if it were leased by the employee.  It publishes a table showing varying values of vehicles and their corresponding fair values.  Of note, the table assumes that the car is driven 100% for personal use for an entire year.  If the car is used for business at all, the value would be prorated based upon the number of personal miles to total miles.  Likewise, if the car was not driven for the entire year, the amount is further prorated for the number of months (or days) it was driven. This brings us to a very important part of the proper care and treatment of employee driven vehicles: mileage tracking.  The IRS requires that mileage be kept contemporaneously i.e. not recorded in one fell swoop at the end of the year.  This rule gets a lot of taxpayers into trouble regarding autos.  Banks should make it a strict policy that the employee must keep the driving log in accordance with IRS requirements.  There are logs that can easily be purchased from office supply stores for this purpose. One question that often arises is how to determine the fair market value of the auto.  The value should be determined as of the first date it is made available to the employee.  There are four safe harbor methods to determining the value the auto – three for leased vehicles and one for owned vehicles.  For an owned vehicle, the value is the purchase price, which includes sales tax, title, etc. For leased vehicles, the value can be one of the following: The manufacturer’s suggested retail price less 8% (retail price includes sales tax, title, etc.) The value as reported by a nationally recognized pricing service e.g. Blue Book. The manufacturer’s invoice price, which includes options, plus 4%. Once the value is determined, it stays the same for four years.  However, if the car is transferred to another employee, it can be revalued at that date (don’t do this just to reduce taxes - that’s not allowed). One item not included in the IRS table is the value for gasoline if the employer provides it.  The amount to include in the employee’s W-2 for gasoline is equal to 5.5 cents times the number of personal miles.  This amount is added to the vehicle value to arrive at the total amount that should be added to the employee’s W-2. Sometimes the bank will agree to “gross up” the amount included in the W-2 such that the employee is given enough funds to cover the taxes resulting from the inclusion of the auto income.  This can be rather expensive to the bank however.