If your company supplies business autos to employees as "perks" or as necessary tools to help them get their work done, their use of the auto for personal reasons, including commuting, has tax implications for them and for your company. An employee's personal use of a company auto generally must be treated as a non-cash taxable fringe benefit subject to income, social security and medicare taxes. Fortunately, the tax rules give you some flexibility in valuing personal usage of the company car. You can choose from among four valuation methods, when eligible:

1) General Fair Market Value Method, which is based on what a person would pay locally to lease a comparable auto for a period of time comparable to the period of time the employee has use of the car;
2) Lease Value Method, which assigns an IRS-determined annual lease value to the auto depending on its value when first provided for the employee's personal use;
3) Mileage Rate Method, which values each personal use mile at the standard business mileage rate designated by the IRS for the year (44.5 cents for miles driven in 2006 and 48.5 cents for miles driven in 2007); or
4) Commute Method, $1.50 is charged per each one-way commute.

Valuing Personal Use of Business Auto

By Shannon Bollin

For the full article including Appendixes please see the attached PDF article below.

If you have any further questions regarding the Lease Valuation Method, please do not hesitate to contact Shannon Bollin (ext. 202) or David St. Yves (ext. 204).

Please note that this memorandum only addresses the specific's of the Lease Valuation Method, if you have questions on the other valuation methods, or calculations for the "inclusion amount" for leased vehicles or fleet valuation rules (20 or more automobiles), please contact our office.

Note: This article represents a general overview of Federal and/or Massachusetts tax developments and should not be relied upon without an independent, professional analysis of how any of these provisions may apply to a specific situation.

CIRCULAR 230 DISCLAIMER: In accordance with Federal regulations, we hereby notify you that any tax advice contained in the body of this e-mail, or attachments thereto, was not intended or written to be used, and cannot be used, by the recipient for the purpose of (1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or (2) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Valuing Personal Use of Business Auto