SECTION 5. CHARITABLE AND

MEDICAL AND MOVING STANDARD MILEAGE RATES

.01 Charitable standard mileage rate . A taxpayer may use the charitable standard mileage rate (published in an annual notice) to compute the charitable contribution deduction for use of an automobile in rendering gratuitous services to a charitable organization under § 170.

.02 Medical and moving standard mileage rate . A taxpayer may use the medical and moving standard mileage rate (published in an annual notice) to compute the deduction for use of an automobile (1) as medical care described in § 213, or (2) as a moving expense deductible under § 217.

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(6) Standard automobile cost . The standard automobile cost for a calendar year may not exceed 95 percent of the sum of (a) the retail dealer invoice cost of the standard automobile in the base locality, and (b) state and local sales or use taxes on the purchase of the automobile. The maximum standard automobile cost for a given taxable year is published in an annual notice.

(7) Annual mileage . Annual mileage is the total mileage (business and personal) a payor reasonably projects an employee will drive a standard automobile during a calendar year. Annual mileage equals the annual business mileage divided by the business use percentage.

(8) Annual business mileage . Annual business mileage is the mileage a payor reasonably projects an employee will drive a standard automobile in performing services as an employee during the calendar year, but may not be less than 6,250 miles for a calendar year. Annual business mileage equals the annual mileage multiplied by the business use percentage.

(9) Business use percentage . A payor determines the business use percentage by dividing the annual business mileage by the annual mileage. The business use percentage may not exceed 75 percent. In lieu of demonstrating the reasonableness of the business use percentage based on records of total mileage and business mileage driven by employees annually, a payor may use a business use percentage that is less than or equal to the following percentages for a FAVR allowance that is paid for the following annual business mileage:

automobile of the same make and model that is comparably equipped), retention period, and business use percentage is considered one FAVR allowance, even though other features of the allowance may vary. A FAVR allowance also includes any optional high mileage payments. However, optional high mileage payments are included in an employee’s gross income, are reported as wages or other compensation on the employee’s Form W–2, and are subject to withholding and payment of employment taxes when paid. See section 7.05 of this revenue procedure. An optional high mileage payment covers the additional depreciation for a standard automobile attributable to business miles an employee drives and substantiates for a calendar year in excess of the annual business mileage for that year. If a FAVR allowance covers an employee for less than the entire calendar year, the annual business mileage may be prorated on a monthly basis for purposes of the preceding sentence.

(2) Periodic fixed payment . A periodic fixed payment covers the projected fixed costs (including depreciation or lease payments, insurance, registration and license fees, and personal property taxes) of driving the standard automobile in performing services as an employee of the employer in a base locality, and must be paid at least quarterly. A payor may compute a periodic fixed payment by (a) dividing the total projected fixed costs of the standard automobile for all years of the retention period, determined at the beginning of the retention period, by the number of periodic fixed payments in the retention period, and (b) multiplying the resulting amount by the business use percentage.

(3) Periodic variable payment . A periodic variable payment covers the projected

variable costs (including gasoline and all taxes thereon, oil, tires, and routine maintenance and repairs) of driving a standard automobile in performing services as an employee in a base locality, and must be paid at least quarterly. A payor may compute a periodic variable payment rate for a computation period by dividing the total projected variable costs for the standard automobile for the computation period, determined at the beginning of the computation period, by the computation period mileage. A computation period may be any period of a year or less. Computation period mileage is the total mileage (business and personal) a payor reasonably projects a standard automobile will be driven during a computation period and equals the retention mileage divided by the number of computation periods in the retention period. For each business mile an employee substantiates for the computation period, a payor must make a periodic variable payment at a rate that does not exceed the rate for that computation period.

(4) Base locality . A base locality is the particular geographic locality or region of the United States where an employee generally pays or incurs the costs of driving an automobile in performing services as an employee. Thus, for purposes of determining the amount of fixed costs, the base locality is generally the geographic locality or region where the employee resides. For purposes of determining the amount of variable costs, the base locality is generally the geographic locality or region where the employee drives the automobile in performing services as an employee.

(5) Standard automobile . A standard automobile is the automobile a payor selects on which a specific FAVR allowance is based.

Annual business mileage Business use percentage

6,250 or more but less than 10,000 45 percent 10,000 or more but less than 15,000 55 percent 15,000 or more but less than 20,000 65 percent 20,000 or more 75 percent

by the number of calendar years in the retention period.

(12) Residual value . The residual value of a standard automobile is the projected amount for which it could be sold at the

(10) Retention period . A retention period is the period in calendar years a payor selects during which the payor expects an employee to drive a standard automobile in performing services as an employee before

the automobile is replaced. The period may not be less than two calendar years.

(11) Retention mileage . Retention mileage is the annual mileage multiplied

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end of the retention period after being driven the retention mileage. The Ser

vice will accept the following safe harbor residual values for a standard automobile

Retention period Residual value

2 years 70 percent 3 years 60 percent 4 years 50 percent

computed as a percentage of the standard automobile cost:

(3) A payor may not provide a FAVR allowance if at any time during a calendar year a majority of the employees the FAVR allowance covers are management employees.

(4) A payor may not provide a FAVR allowance to any employee unless at all times during a calendar year FAVR allowances provided by the payor cover at least five employees in total.

(5) A payor may provide a FAVR allowance only for an automobile (a) the employee receiving the payment owns or leases, (b) the cost of which, as a new vehicle (whether or not purchased new by the employee), was at least 90 percent of the standard automobile cost included in determining the FAVR allowance for the first calendar year the employee receives the allowance for that automobile, and (c) for which the model year does not differ from the current calendar year by more than the number of years in the retention period.

(6) A payor may not provide a FAVR allowance for an automobile an employee leases for which the employee has used actual expenses to compute the deductible business expenses of the automobile for any year during the lease period.

(7) The insurance cost component of a FAVR allowance must be based on the rates charged in the base locality for insurance coverage on the standard automobile during the current calendar year without considering rate-increasing factors such as poor driving records or young drivers.

(8) A payor may provide a FAVR allowance only to an employee whose insurance coverage limits on the automobile for which the FAVR allowance is paid are at least equal to the insurance coverage limits used to compute the periodic fixed payment under that FAVR allowance.

.06 Employee reporting . Within 30 days after a FAVR allowance initially covers an employee’s automobile, or again covers the automobile if coverage has lapsed, the employee by written declaration must provide the payor with the fol

.03 FAVR allowance in lieu of fixed and variable costs .

(1) A reimbursement computed using a FAVR allowance is in lieu of the employee’s deduction of all the fixed and variable costs the employee pays or incurs in driving the automobile in performing services as an employee, except as provided in section 7.06 of this revenue procedure. Items such as depreciation or lease payments, maintenance and repairs, tires, gasoline (including all taxes thereon), oil, insurance, license and registration fees, and personal property taxes are included in fixed and variable costs for this purpose.

(2) An employee may deduct, as separate items, parking fees and tolls attributable to the employee driving the standard automobile in performing services as an employee. Similarly, an employee may deduct, as a separate item, interest relating to the purchase of the standard automobile to the extent that the interest is an allowable deduction under § 163.

.04 Depreciation . (1) A payor may not provide a FAVR allowance for an automobile for which an employee has (a) claimed depreciation using a method other than straight-line for its estimated useful life, (b) claimed a § 179 deduction, (c) claimed the additional firstyear depreciation allowance under, for example, § 168(k) or § 168(n), or (d) used ACRS under former § 168 or MACRS under current § 168. If an employee uses actual costs for an owned automobile that has been covered by a FAVR allowance, the employee must use straight-line depreciation for the automobile’s remaining estimated useful life (subject to the applicable depreciation deduction limitations under § 280F).

(2) Except as provided in section 6.04(3) of this revenue procedure, the total amount of the depreciation component for the retention period a payor includes in computing the periodic fixed payments for that retention period may not exceed

the excess of the standard automobile cost over the residual value of the standard automobile. In addition, the total amount of the depreciation component may not exceed the sum of the annual § 280F limitations on depreciation in effect at the beginning of the retention period that apply to the standard automobile during the retention period.

(3) If the depreciation component of the periodic fixed payments exceeds the limitations in section 6.04(2) of this revenue procedure, the Service will treat that section as satisfied if the total annual amount of the FAVR (periodic fixed and variable) payments a payor makes to an employee driving 80 percent of the annual business mileage of the standard automobile does not exceed the business standard mileage rate for that year multiplied by 80 percent of the annual business mileage of the standard automobile.

(4) The depreciation included in each periodic fixed payment portion of a FAVR allowance paid for an automobile reduces the basis of the automobile (but not below zero) in determining adjusted basis as required by § 1016. See section 6.07(2) of this revenue procedure for the requirement that the employer report the depreciation component of a periodic fixed payment to the employee.

.05 FAVR allowance limitations . (1) A payor may provide a FAVR allowance only to an employee who substantiates to the payor for a calendar year at least 5,000 miles driven in performing services as an employee or, if greater, 80 percent of the annual business mileage of that FAVR allowance. If the employee is covered by the FAVR allowance for less than the entire calendar year, the payor may prorate these limits on a monthly basis.

(2) A payor may not provide a FAVR allowance to a control employee (as defined in § 1.61–21(f)(5) and (6), excluding the $100,000 limitation in paragraph (f)(5)(iii)).

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that relates to unsubstantiated travel miles, even though the arrangement does not require the employee to return the portion of the allowance that relates to substantiated travel miles and that exceeds the amount of the employee’s expenses deemed substantiated. For example, a payor provides an employee an advance mileage allowance of $120.00 based on an anticipated 200 business miles at 60 cents per mile (at a time when the business standard mileage rate is 50 cents per mile), and the employee substantiates 120 business miles. The requirement to return excess amounts is treated as satisfied if the employee is required to return the portion of the allowance that relates to the 80 unsubstantiated business miles ($40.00) even though the employee is not required to return the portion of the allowance ($12.00) that exceeds the amount of the employee’s expenses deemed substantiated under section 7.01 of this revenue procedure ($60.00) for the 120 substantiated business miles. However, the $12.00 excess portion of the allowance is treated as paid under a nonaccountable plan as discussed in section 7.05 of this revenue procedure.

(2) For a mileage allowance (other than a FAVR allowance) paid other than only at a cents-per-mile rate, the requirement to return excess amounts is treated as satisfied if the employee is required to return within a reasonable period of time (as defined in § 1.62–2(g)) any portion of the allowance that exceeds the product of the business standard mileage rate and the number of substantiated travel miles. For example, a payor provides an employee an advance mileage allowance of $400 per month plus 20 cents per mile based on an anticipated 2000 miles for a total of $800 (at a time when the business standard mileage rate is 50 cents per mile), and the employee substantiates 1000 business miles. The requirement to return excess amounts is treated as satisfied if the employee is required to return $300, the portion of the allowance that exceeds the product of the standard mileage rate and the miles substantiated ($500).

(3) For a FAVR allowance, the requirement to return excess amounts is treated as satisfied if the employee is required to return, within a reasonable period of time (as defined in § 1.62–2(g)), (a) the portion (if any) of the periodic variable payment received that relates to miles in excess of

lowing information: (1) the make, model, and year of the employee’s automobile, (2) written proof of the insurance coverage limits on the automobile, (3) the odometer reading of the automobile, (4) if owned, the purchase price of the automobile or, if leased, the price at which the automobile is ordinarily sold by retailers (the gross capitalized cost of the automobile), and (5) if owned, whether the employee has claimed depreciation for the automobile using any of the depreciation methods prohibited by section 6.04(1) of this revenue procedure or, if leased, whether the employee has computed deductible business expenses for the automobile using actual expenses. The employee also must provide the information in (1), (2), and (3) to the payor within 30 days after the beginning of each calendar year that a FAVR allowance covers the employee’s automobile.

.07 Payor recordkeeping and reporting . (1) The payor or its agent must maintain written records stating (a) the statistical data and projections on which the FAVR allowance payments are based, and (b) the information the employees provided under section 6.06 of this revenue procedure.

(2) Within 30 days of the end of each calendar year, the payor must provide each employee covered by a FAVR allowance during that year with a statement that lists the amount of depreciation included in each periodic fixed payment portion of the FAVR allowance paid during that calendar year to an automobile owner and explains that by receiving a FAVR allowance the employee has elected to exclude the automobile from the Modified Accelerated Cost Recovery System under § 168(f)(1). For automobile lessees, the statement must explain that by receiving the FAVR allowance the employee may not compute the deductible business expenses of the automobile using actual expenses for the lease period.

.08 Failure to meet section 6 require- ments . If an employee receives a mileage allowance that fails to meet one or more of the requirements of this section 6, the employee may not be treated as covered by any FAVR allowance of the payor during the period of the failure. Nevertheless, the expenses to which that mileage allowance relates may be deemed substantiated using the method described in sections 4, 7.01(1), and 7.02 of this revenue

procedure to the extent the requirements of those sections are met.