Category: Deductions & Credits
Subject: Standard Mileage Allowance
Title: Present State of the Law
IRC Sections: 162
Filename: 1225.html
Date Produced: 05/95 Copyright 1998, The Tax Resource Group. All rights reserved.
Telephone 800-578-3498. Internet: www.taxresourcegroup.com Issue
In the past, taxpayers using the standard mileage method for automobile
expenses used for business purposes were required to reduce the
mileage rate allowed in any year in which the taxpayer used the
automobile more than 15,000 miles for business. What is the present state of the law? Answer
The IRS changed its policy with respect to this issue in 1989
effective for expenses paid or incurred on or after January 1,
1990. Discussion
Revenue Procedure 89-62, 1989-2 CB 782, sets forth the standard
mileage rate for business automobile use at 29 cents for the first
15,000 miles in any given tax year and 11 cents thereafter. Rev.
Proc. 89-62 was superseded by Rev. Proc. 89-66, 1989-2 CB 792,
effective for expenses paid or incurred on or after January 1,
1990.
Section 4.01 of Rev. Proc. 89-66 provides that the standard mileage
rate of 26 cents is applicable to all business miles driven. Rev.
Proc. 89-66 cites a number of limitations and conditions with
respect to use of the standard mileage method (e.g., Sections
4.06(1) and 4.06(2)), but there is no mention of any 15,000-mile
limitation. The concept of depreciation is mentioned repeatedly
throughout the document, but again no 15,000 limit is referenced.
The language set forth in Rev. Proc. 89-66 is mirrored in all
subsequent pronouncements designed to announce the standard mileage
rate for subsequent years. In each case, the language of Section
5.01 is again all business miles. See Rev. Proc. 94-73, 1994-52
IRB 23; Rev. Proc. 93-51, 1993-42 IRB 30; Rev. Proc. 92-104, 1992-2
CB 583; Proc. 91-67, 1991-2 CB 887; Rev. Proc. 91-67, 1991-2 CB
887; and Rev. Proc. 90-59, 1990-2 CB 644. It is clear that the IRS has intentionally changed its policy
in this matter. Consider the following example in the current
IRS Publication 17. During the year, Bill drove a total of 25,000 miles of which
20,000 miles were for business. Following the instructions for
Part II of Form 2106, he answers all the questions and figures
his vehicle expense to be $5,800 (20,000 business miles * 29
cents standard mileage rate). His total employee business expenses
are shown in the following table.
Type of Expense Amount
-----------------------------------------------------------------------------
Parking fees and tolls ...............................................400
Vehicle expenses .................................................
5,800
Meals ..................................................................
2,632
Lodging, laundry, cleaning ...................................10,000
Entertainment ........................................................1,870
400
Gifts, education, etc. ............................................---------
....21,102
Total ----------
Bill received a reimbursement of $300 per month to help offset
his car expenses. The reimbursement was figured at 25 cents per
mile for up to 1,200 miles. Bill accounted to his employer for
at least 1,200 business miles each month, and he received $3,600
in reimbursements for 1994. Because the reimbursement was less
than the standard mileage rate, Bill's employer did not include
the $3,600 in box 1 of Bill's Form W-2. Bill files Form 2106
with his tax return. His filled-in form is shown at the end of
this chapter. Consider also the following excerpt from BNA, Tax Management
Portfolio 519-1st.
a. Standard Mileage Rate and Mileage Allowances
(1) Standard Mileage Rates
As a matter of longstanding administrative practice, the IRS
has attempted
to ease the burden of establishing the amount of deductible automobile
expenses incurred by a taxpayer by permitting any taxpayer (including
an
employee who is reimbursed for his expenses) to compute such
expenses by the
use of a standard mileage rate. This method of computation greatly
simplifies
the calculation of the deductible amount of travel when the automobile
has
been used for both business and personal purposes.
The standard mileage rate only establishes the amount of an expenditure
for
travel or transportation. Thus, if this simplified method of
computing costs
is to apply, the taxpayer must also substantiate under Section
274(d) the
time, place, and business purpose of the travel, as well as establish
the
business mileage of the automobile. By the same token, as discussed
directly
below at VI, C, 3, a, 2, (a), an employee (or independent contractor)
who
receives a mileage allowance or reimbursement from his employer
(or principal)
at the preapproved figure promulgated by the IRS is deemed to
have
substantiated at least the lesser of (1) the amount he is paid
or (2) the
product of the standard mileage rate and the number of substantiated
business
miles driven by the employee (or independent contractor). Of
course, any
unreimbursed excess of such expenses over the amount so deemed
substantiated
may be claimed as a deduction, in the case of any employee subject
to the 2%
of AGI floor, discussed at VI, D, 3, c, below, as well as the
3% of AGI
ceiling discussed at VI, D, 3, d, below.
Note: The standard mileage rate applies to all employees,
including those
"related" to the employer.
The IRS establishes and announces annually the fixed business
standard
mileage deduction for that calendar year. In 1994, the figure
is 29 cents per
mile for all business miles, with respect to transportation expenses
paid or
incurred after December 31, 1993. \1946/
BNA, Tax Management Portfolio 519-1st, 3. Permissible Simplified
Recordkeeping
\1946/ Rev. Proc. 93-51, 1993-2 C.B. 593, .Section 2 For rates
in the three
calendar years preceding 1994, see Rev. Proc. 92-104, 1992-2 C.B.
583 (28
cents per mile in 1993); Rev. Proc. 91-67, 1991-2 C.B. 887 (28
cents per mile
in 1992); Rev. Proc. 90-59, 1990-2 C.B. 644 (27.5 cents per mile
in 1991);
Rev. Proc. 89-66, 1989-2 C.B. 792 (26 cents per mile in 1990);
for rates in
calendar years preceding 1990, see below.
Note: In 1990, the IRS discontinued the use of a two-step standard
mileage
rate (one for the first 15,000 business miles and a second lower
rate for all
miles in excess of 15,000), which represented a considerable simplification
over pre-1990 practice. \1947/
\1947/ In 1989, the rate was 25.5 cents per mile for the first
15,000 miles of
business use and 11 cents per mile for all miles in excess of
15,000 (Rev.
Proc. 89-62, 1989-2 C.B. 782), and in preceding calendar years
the
corresponding rates for the initial 15,000 miles and for all miles
thereafter
were, in 1988, 24 cents and 11 cents (Rev. Proc. 88-52, 1988-2
C.B. 711); in
1987, 22.5 cents and 11 cents (Rev. Proc. 87-49, 1987-2 C.B. 646);
in 1986 and
1985, 21 cents and 11 cents (Rev. Proc. 86-38, 1986-2 C.B. 701);
and in 1984
and 1983, 20.5 cents and 11 cents (Rev. Proc. 84-72, 1984-2 C.B.
735). Rates
for earlier years can be found in Rev. Proc. 82-61, 1982-2 C.B.
849. [Emphasis added.] |
