SECTION 3. APPLICATION

.01 Payments Made by Federal Execu- tive Agencies to Which This Notice Applies

The special allowances described in 5 U.S.C. § 5523(b) and 5 C.F.R. §§ 550.403(c) and 550.405(b)(2) that an employee receives as a result of Hurricane Katrina will be treated as reasonable, necessary, and excludable from the gross income and wages of the employee under § 139 to the extent that the expenses compensated by the special allowances are not otherwise compensated for by insurance or otherwise.

Federal executive agencies that pay an employee special allowances authorized by 5 U.S.C. § 5523(b) and 5 C.F.R. §§ 550.403(c) and 550.405(b)(2) as a result of Hurricane Katrina will not be required to report the special allowances (even if the expenses are otherwise compensated for by insurance or otherwise) on Form W–2, Wage and Tax Statement, or to deduct and withhold taxes from these amounts. In addition, the IRS will not require either a Federal executive agency or its employee to include any amount of Hurricane Katrina special allowances in wages for employment tax purposes (even if the expenses are otherwise compensated for by insurance or otherwise).

2006–5 I.R.B. 387 January 30, 2006

the first time in calendar year 2006 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 regulations section 1.61–21(d)(5)(v) to calculate the Annual Lease Values of the automobiles in the fleet. The fleet-average valuation rule may not be used to determine the Annual Lease Value of any automobile if its fair market value on the date it is first made available exceeds $19,900 for a passenger automobile other than a truck or van, or $21,400 for a truck or van. If all other applicable requirements are met, an employer with a fleet of 20 or more vehicles consisting of passenger automobiles other than trucks or vans as well as trucks and vans may use the fleet-average valuation rule as long as none of the vehicles exceed their respective maximum allowable values. If the fair market value of any passenger automobile in the fleet exceeds these amounts, the employer may determine the value of the personal use under regulations section 1.61–21(f) (Commuting valuation) or the general valuation rules of section 1.61–21(b), or may determine the Annual Lease Value of such automobile separately under the automobile lease valuation rule of section 1.61–21(d)(2) if the applicable requirements are met.