Cents-Per-Mile Rule

Under this rule, you determine the value of a vehicle you provide to an employee for personal use by multiplying the standard mileage rate by the total miles the employee drives the vehicle for personal purposes. Personal use is any use of the vehicle other than use in your trade or business. This amount must be included in the employee's wages or reimbursed by the employee. For 2002, the standard mileage rate is 36.5 cents a mile.

Maximum automobile value. You cannot use the cents-per-mile rule for an automobile (any 4-wheeled vehicle, such as a car, pickup, or van) if its value when you first make it available to any employee for personal use is more than an amount determined by the IRS as the maximum automobile value for the year. For example, you cannot use the cents-per-mile rule for an automobile you first made available to an employee in 2001 if its value at that time was more than $15,400. The maximum automobile value for 2002 will be published in a revenue procedure in the Internal Revenue Bulletin early in 2002. If you and the employee own or lease the automobile together, see section 1.61-21(e)(1)(iii) of the regulations.

You can use the cents-per-mile rule if either of the following requirements is met.

1. You reasonably expect the vehicle to be regularly used in your trade or business throughout the calendar year (or for a shorter period during which you own or lease it).
2. The vehicle meets the mileage test.

Vehicle. For this rule, a vehicle is any motorized wheeled vehicle, including an automobile, manufactured primarily for use on public streets, roads, and highways.

Regular use in your business. A vehicle is regularly used in your trade or business if at least one of the following conditions is met.

1. At least 50% of the vehicle's total annual mileage is for your trade or business.
2. You sponsor a commuting pool that generally uses the vehicle each workday to drive at least 3 employees to and from work.
3. The vehicle is regularly used in your trade or business on the basis of all the facts and circumstances. Infrequent business use of the vehicle, such as for occasional trips to the airport or between your multiple business premises, is not regular use of the vehicle in your trade or business.

Mileage test. A vehicle meets the mileage test for a calendar year if both of the following requirements are met.

1. The vehicle is actually driven at least 10,000 miles during the year. If you own or lease the vehicle only part of the year, reduce the 10,000 mile requirement proportionately.
2. The vehicle is used during the year primarily by employees. Consider the vehicle used primarily by employees if they use it consistently for commuting. Do not treat use of the vehicle by another individual whose use would be taxed to the employee as use by the employee.

For example, if only one employee uses a vehicle during the calendar year and that employee drives the vehicle at least 10,000 miles in that year, the vehicle meets the mileage test even if all miles driven by the employee are personal.

Consistency requirements. If you use the cents-per-mile rule, the following requirements apply:

1. You must begin using this rule the first day you make the vehicle available to any employee for personal use. However, if you use the commuting rule when you first make the vehicle available to any employee for personal use, you can change to the cents-per-mile rule on the first day for which you do not use the commuting rule.
2. You must use this rule for all later years in which you make the vehicle available to any employee and the vehicle qualifies, except that you can use the commuting rule for any year during which use of the vehicle qualifies. However, if the vehicle does not qualify for the cents-per-mile rule during a later year, you can use for that year and thereafter any other rule for which the vehicle then qualifies.
3. You must continue to use this rule if you provide a replacement vehicle to the employee and your primary reason for the replacement is to reduce federal taxes.

Items included in cents-per-mile rate. The cents-per-mile rate includes the value of maintenance and insurance for the vehicle. Do not reduce the rate by the value of any service included in the rate that you did not provide. (You can take into account the services actually provided for the vehicle by using the general valuation rule discussed earlier.)

For miles driven in the United States, its territories and possessions, Canada, and Mexico, the cents-per-mile rate includes the value of fuel you provide. If you do not provide fuel, you can reduce the rate by no more than 5.5 cents.

For special rules that apply to fuel you provide for miles driven outside the United States, Canada, and Mexico, see section 1.61-21(e)(3)(ii)(B) of the regulations.

The value of any other service you provide for a vehicle is not included in the cents-per-mile rate. Use the general valuation rule to value these services.

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