IRS Updates Method Thresholds for Vehicle Fringe Benefits

The IRS has updated for 2010 (Revenue Procedure 2010-10) the maximum allowable fair market value (FMV) of an employer-provided vehicle for which the cents-per-mile and fleet-average rules may be used in determining the value of an employee’s personal use of the vehicle.

For passenger automobiles, the new maximum FMV is $15,300 for the cents-per-mile rule and $20,300 for the fleet-average valuation rule. The respective limits for trucks and vans are $16,000 and $21,000. All figures increase from 2009, in which the amounts decreased or were unchanged from the previous year because of an unusual drop in the automotive component of the Consumer Price Index.

The value of an employee’s personal use of an employer-provided vehicle is a taxable fringe benefit (Treas. Reg. § 1.61-21(a)(1)). The methods available to determine the value of the employee’s personal use include the general valuation method and three special valuation methods.

The value of the personal use can be determined under the cents-per-mile valuation method if certain requirements are met, including the requirement of Treas. Reg. § 1.61-21(e)(1)(iii) that the fair market value of the passenger automobile is less than a specified dollar limit (the dollar limit specified in the revenue procedure). If the fair market value of the passenger automobile exceeds the amount allowable for the cents-per-mile method, the employer may determine the value of the personal use under the general valuation rules of Treas. Reg. § 1.61-21(b), the special valuation rules of Treas. Reg. § 1.61-21(d) (automobile lease valuation) or Treas. Reg. § 1.61-21(f) (commuting valuation), if the applicable requirements are met.

An employer with a fleet of 20 or more automobiles providing an automobile for the first time in a calendar year for the personal use of any employee for an entire year may determine the value of the personal use by using the fleet-average valuation rule in Treas. Reg. § 1.61-21(d)(5)(v) to calculate the annual lease values of the automobiles in the fleet. However, the value of the personal use may not be determined under the fleet-average valuation rule for a calendar year if the fair market value of the automobile (determined under Treas. Reg. §§ 1.61-21(d)(5)(i) through (iv)) on the first date the passenger automobile is made available to the employee exceeds a specified dollar limit.

The maximum dollar limits for passenger automobiles for both the cents-per-mile and the fleet-average value rules reflect the automobile price inflation adjustment of IRC § 280F(d)(7).

For the 2009 limits, see Revenue Procedure 2009-12.