IRS Issues Final Rule on Qualified Non-personal Use Vehicles
|Date Posted: May 19, 2010|
Code Section 132(d) treats as a working condition fringe benefit business use of a vehicle, as long as the employer and employee substantiate the business use, since the vehicles are considered "listed property" under Section 280F(d)(4). Qualified nonpersonal use vehicles are exempt from the substantiation requirements.
Both business and personal use of vehicles that meet the criteria of Section 274(i) and 1.274-5T(k) of the regulations qualify as a working condition fringe benefit that is excluded from the recipient's income under Section 132(d) because it is presumed that most of the employee's use of such a vehicle, for example a marked police car or ambulance — is nonpersonal.
Congress in 1985 recognized that while certain types of vehicles — such as ambulances and fire trucks — are not likely to be used for personal reasons by employees, passenger vehicles like sedans or sport utility vehicles are more easily used for personal reasons. Thus, the former could be deemed as vehicles for which personal use is de minimis — that is, of a value small enough to not require substantiation — while the latter would require the employee to substantiate his or her business use of the vehicle in order to exclude the value of the vehicle use as income.
Until the May 19 change in the regulation, there was one catch that operated to exclude public safety officer cars — the employee using the qualified vehicle must be employed by either the fire or police departments, even if the vehicles were clearly marked and the federal, state or local employee was using the vehicle to respond to emergencies. The final regulations add clearly marked public safety officer vehicles to the list of qualified nonpersonal use vehicles so that emergency responders who are not employed by either the fire or police departments receive the same treatment as those who are.
Thus, if an employer provides an employee with a qualified nonpersonal use vehicle, the employee does not need to keep records of how the vehicle is used, and both the business and the personal use of the vehicle will be excluded from the employee's income as a working condition fringe benefit under section 132(d).
More information about working condition fringe benefits can be found in Thompson Publishing Group's Employer's Guide to Fringe Benefit Rules.