The IRS issued Proposed Regulations on June 6, 2008, that expand the definition of qualified nonpersonal use vehicles to include clearly marked public safety officer vehicles.
In general, employees using employer vehicles are subject to tax on the value of the personal use. Because most vehicles are by their nature are more likely to be used for personal use, they are considered “listed property” under IRC 280F(d)(4). If the business use of these vehicles is substantiated it is excludable as a working condition fringe benefit under IRC 132(f). For these vehicles, any amount not substantiated as business use must be included in wages. Substantiation generally requires keeping daily records of vehicle use.
These substantiation requirements do not apply to a “qualified nonpersonal use vehicle.” A qualified nonpersonal use vehicle is one that, by its design, is not likely to be used more than minimally for personal purposes. This includes vehicles such as construction or farm vehicles, school buses, specially-modified pickup trucks, etc. (For a complete list, see Publication 15-B.) Use of these vehicles is considered a working condition fringe benefit and does not require substantiation for the use to be excluded from the wages of the employee.
Clearly marked police or fire officer vehicles are also treated as qualified nonpersonal use vehicles, if the following conditions apply:
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The employee must always be on call.
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The employee must be required to use the vehicle for commuting.
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The employer must prohibit personal use (other than commuting) for travel outside of the officer’s or firefighter’s jurisdiction.
The Proposed Regulations add “public safety officer” to this provision. This means that any Federal, state or local government employee who drives a clearly marked government owned or leased vehicle in the course of his or her duties and meets the above tests, is excepted from the substantiation requirements under section 274.
A public safety officer vehicle is “clearly marked” if, through painted insignia or words, it is readily apparent that the vehicle is a public safety officer vehicle.
The IRS is requesting comments and requests for a pubic hearing by September 8, 2008.
For more information on rules for employee use of employer-owned vehicles, see Publication 15-B or the FSLG Taxable Fringe Benefit Guide.
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