[Federal Register Volume 73, Number 111 (Monday, June 9, 2008)]
[Proposed Rules]
[Pages 32500-32503]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-12805]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-106897-08]
RIN 1545-BH65


Qualified Nonpersonal Use Vehicles

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations relating to 
qualified nonpersonal use vehicles as defined in section 274(i). 
Qualified nonpersonal use vehicles are excepted from the substantiation 
requirements of section 274(d)(4) that apply to listed property as 
defined in section 280F(d)(4). These proposed regulations would add 
clearly marked public safety officer vehicles as a new type of 
qualified nonpersonal use vehicles. These proposed regulations would 
affect employers that provide their employees with qualified 
nonpersonal use vehicles and the employees who use such vehicles.

DATES: Written or electronic comments and requests for a public hearing 
must be received by September 8, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-106897-08), Room 
5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered between the 
hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-106897-08), Couriers 
Desk, Internal Revenue Service, 1111 Constitution Avenue, NW., 
Washington, DC. Additionally, taxpayers may submit electronic comments 
directly via the Federal eRulemaking Portal at www.regulations.gov (IRS 
REG-106897-08).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Don Parkinson or Selvan Boominathan at (202) 622-6040; concerning the 
submission of comments or requests for a hearing, Kelly Banks at (202) 
622-3628 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Background

    This document contains proposed Income Tax Regulations under 
section 274(i) added by section 2(b) of Public Law 99-44 (May 24, 
1985), which provides a definition of qualified nonpersonal use 
vehicle. Temporary Regulation Sec.  1.274-5T(k), identifying categories 
of qualified nonpersonal use vehicles, was issued in TD 8061 (1982-2 CB 
93 (1985)). A notice of proposed rulemaking was issued by cross-
reference to Temporary Regulation Sec.  1.274-5T(k) (50 FR 46088, 1985-
2 CB 809 (1985)). These proposed regulations incorporate the text of 
Sec.  1.274-5T(k) and add clearly marked public safety officer vehicles 
as a new type of qualified nonpersonal use vehicle, listed along with 
clearly marked police and fire vehicles at Sec.  1.274-5(k)(2)(ii)(A). 
Clearly marked public safety officer vehicles are added to the 
definition of clearly marked police and fire vehicles at Sec.  1.274-
5(k)(3), and an example is added at Sec.  1.274-5(k)(8). (See Sec.  
601.601(d)(2)(ii)(b).)

Explanation of Provisions

    Section 274(d) provides that a taxpayer is not allowed a deduction 
or credit for certain expenses unless the expense is substantiated. 
These substantiation requirements apply to expenses incurred in the of 
use of any listed property (defined in section 280F(d)(4)), which 
includes any passenger automobile and any other property used as a 
means of transportation. Section 274(d) does not apply to any qualified 
nonpersonal use vehicle as defined in section 274(i).
    Section 274(i) provides that a qualified nonpersonal use vehicle is 
any vehicle which by reason of its nature is not likely to be used more 
than a de minimis amount for personal uses. The legislative history to 
section 274(i) provided a list of qualified nonpersonal use vehicles 
and identified a number of examples of qualified nonpersonal use 
vehicles such as school buses, qualified specialized utility repair 
trucks, and qualified moving vans. The legislative history indicated 
that Congress wanted the Commissioner to expand the list to include 
other vehicles appropriate for listing because by their nature it is 
highly unlikely that they will be used more than a very minimal amount 
for personal purposes. H.R. Rep. No. 99-34, at 11 (1985).
    Passenger automobiles such as sedans and sport utility vehicles are 
generally not exempt from taxation as qualified nonpersonal use 
vehicles because by design they can easily be used for personal 
purposes. However, unmarked law enforcement vehicles and clearly marked 
police and fire vehicles are included in the list of qualified 
nonpersonal use vehicles set forth in the legislative history to 
section 274(i) and incorporated into the proposed and temporary 
regulations.
    The IRS and the Treasury Department have become aware of a need for 
an

[[Page 32501]]

additional category of vehicles to be included in the list of qualified 
nonpersonal use vehicles. Clearly marked vehicles provided to Federal, 
state and local government workers who respond to emergency situations 
do not satisfy the current regulations governing qualified nonpersonal 
use vehicles if the individual workers are not employed by either the 
fire department or police department. Accordingly, the proposed 
regulations add clearly marked public safety officer vehicles to the 
list of qualified nonpersonal use vehicles so that emergency responders 
receive the same treatment whether they work for the police department, 
fire department or another department of state or local government.
    A clearly marked public safety officer vehicle is a vehicle owned 
or leased by a governmental unit or any agency or instrumentality 
thereof, that is required to be used for commuting by a public safety 
officer as defined in section 402(l)(4)(C) who, when not on a regular 
shift, is on call at all times, provided that any personal use (other 
than commuting) of the vehicle outside the limit of the public safety 
officer's obligation to respond to an emergency is prohibited by such 
governmental unit. 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.
    Section 402(l)(4)(c) provides that the term ``public safety 
officer'' shall have the same meaning given such term by the Omnibus 
Crime Control and Safe Streets Act of 1968, as codified at 42 U.S.C. 
3796b(9)(A). 42 U.S.C. 3796b(9)(A) defines public safety officer as 
``an individual serving a public agency in an official capacity, with 
or without compensation, as a law enforcement officer, a firefighter, a 
chaplain, or as a member of a rescue squad or ambulance crew.''
    Proposed Sec.  1.274-5(k) and (l) provide a list of qualified 
nonpersonal use vehicles and related definitions. Section 1.274-5(k) 
and (l) were originally proposed in 1985 (LR-145-84, 50 FR 46088, 
November 6, 1985) and simultaneously issued as a temporary regulation 
(TD 8061, 50 FR 46006, November 6, 1985). Paragraph (k) of LR-145-84 is 
being re-proposed, with amendments, as part of these proposed 
regulations. Paragraph (l) provides definitions of the terms 
``automobile,'' ``vehicle,'' ``employer,'' ``employee,'' and ``personal 
use.'' Paragraph (l) is being re-proposed, with no changes, as part of 
these proposed regulations. The corresponding provisions of the 
proposed regulations in LR-145-84 are withdrawn upon publication of 
this notice. The corresponding provisions of the temporary regulations 
in TD 8061 will be withdrawn once these proposed regulations are 
published as final regulations in the Federal Register.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based upon the fact that these regulations do not require a collection 
of information and do not impose any new or different requirements on 
small entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, this notice 
of proposed rulemaking has been submitted to the Chief Council for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Comments and Requests for Public Hearings

    Before these proposed amendments are adopted, consideration will be 
given to any written comments that are submitted to CC:PA:LPD:PR (REG-
106897-08). All comments will be available for public inspection and 
copying. A public hearing will be scheduled and held upon written 
request by any person who submits written comments on the proposed 
regulation. Notice of the time and place for the hearing will be 
published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Don E. Parkinson and 
Selvan V. Boominathan, Office of the Associate Chief Counsel (Tax 
Exempt and Government Entities). However, other personnel from the IRS 
and Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Par. 2. Section 1.132-5 paragraph (h) is revised to read as 
follows:


Sec.  1.132-5  Working condition fringes.

* * * * *
    (h) Qualified nonpersonal use vehicles--(1) In general. Except as 
provided in paragraph (h)(2) of this section, 100 percent of the value 
of the use of a qualified nonpersonal use vehicle (as described in 
Sec.  1.274-5(k)) is excluded from gross income as a working condition 
fringe, provided that, in the case of a vehicle described in Sec.  
1.274-5(k)(3) through (8), the use of the vehicle conforms to the 
requirements of that paragraph.
    (2) Shared usage of qualified nonpersonal use vehicles. In general, 
a working condition fringe under this paragraph (h) is available to the 
driver and all passengers of a qualified nonpersonal use vehicle. 
However, a working condition fringe under this paragraph (h) is 
available only with respect to the driver and not with respect to any 
passengers of a qualified nonpersonal use vehicle described in Sec.  
1.274-5(k)(2)(ii)(L) or (P).
* * * * *
    Par. 3. Section 1.274-5 paragraphs (k) and (l) and the last 
sentence of paragraph (m) are revised to read as follows:


Sec.  1.274-5  Substantiation requirements.

* * * * *
    (k) Exceptions for qualified nonpersonal use vehicles--(1) In 
general. The substantiation requirements of section 274(d) and this 
section do not apply to any qualified nonpersonal use vehicle (as 
defined in paragraph (k)(2) of this section).
    (2) Qualified nonpersonal use vehicle--(i) In general. For purposes 
of section 274(d) and this section, the term qualified nonpersonal use 
vehicle means any vehicle which, by reason of its nature (that is, 
design), is not likely to be used more than a de minimis amount for 
personal purposes.
    (ii) List of vehicles. Vehicles which are qualified nonpersonal use 
vehicles include the following:
    (A) Clearly marked police, fire, and public safety officer vehicles 
(as defined and to the extent provided in paragraph (k)(3) of this 
section).
    (B) Ambulances used as such or hearses used as such.

[[Page 32502]]

    (C) Any vehicle designed to carry cargo with a loaded gross vehicle 
weight over 14,000 pounds.
    (D) Bucket trucks (cherry pickers).
    (E) Cement mixers.
    (F) Combines.
    (G) Cranes and derricks.
    (H) Delivery trucks with seating only for the driver, or only for 
the driver plus a folding jump seat.
    (I) Dump trucks (including garbage trucks).
    (J) Flatbed trucks.
    (K) Forklifts.
    (L) Passenger buses used as such with a capacity of at least 20 
passengers.
    (M) Qualified moving vans (as defined in paragraph (k)(4) of this 
section).
    (N) Qualified specialized utility repair trucks (as defined in 
paragraph (k)(5) of this section).
    (O) Refrigerated trucks.
    (P) School buses (as defined in section 4221(d)(7)(c)).
    (Q) Tractors and other special purpose farm vehicles.
    (R) Unmarked vehicles used by law enforcement officers (as defined 
in paragraph (k)(6) of this section) if the use is officially 
authorized.
    (S) Such other vehicles as the Commissioner may designate.
    (3) Clearly marked police, fire, or public safety officer vehicles. 
A police, fire, or public safety officer vehicle is a vehicle, owned or 
leased by a governmental unit, or any agency or instrumentality 
thereof, that is required to be used for commuting by a police officer, 
fire fighter, or public safety officer (as defined in section 
402(l)(4)(C) of this chapter) who, when not on a regular shift, is on 
call at all times, provided that any personal use (other than 
commuting) of the vehicle outside the limit of the police officer's 
arrest powers or the fire fighter's or public safety officer's 
obligation to respond to an emergency is prohibited by such 
governmental unit. A police, fire, or public safety officer vehicle is 
clearly marked if, through painted insignia or words, it is readily 
apparent that the vehicle is a police, fire, or public safety officer 
vehicle. A marking on a license plate is not a clear marking for 
purposes of this paragraph (k).
    (4) Qualified moving van. The term qualified moving van means any 
truck or van used by a professional moving company in the trade or 
business of moving household or business goods if--
    (i) No personal use of the van is allowed other than for travel to 
and from a move site (or for de minimis personal use, such as a stop 
for lunch on the way between two move sites);
    (ii) Personal use for travel to and from a move site is an 
irregular practice (that is, not more than five times a month on 
average); and
    (iii) Personal use is limited to situations in which it is more 
convenient to the employer, because of the location of the employee's 
residence in relation to the location of the move site, for the van not 
to be returned to the employer's business location.
    (5) Qualified specialized utility repair truck. The term qualified 
specialized utility repair truck means any truck (not including a van 
or pickup truck) specifically designed and used to carry heavy tools, 
testing equipment, or parts if--
    (i) The shelves, racks, or other permanent interior construction 
which has been installed to carry and store such heavy items is such 
that it is unlikely that the truck will be used more than a de minimis 
amount for personal purposes; and
    (ii) The employer requires the employee to drive the truck home in 
order to be able to respond in emergency situations for purposes of 
restoring or maintaining electricity, gas, telephone, water, sewer, or 
steam utility services.
    (6) Unmarked law enforcement vehicles--(i) In general. The 
substantiation requirements of section 274(d) and this section do not 
apply to officially authorized uses of an unmarked vehicle by a ``law 
enforcement officer''. To qualify for this exception, any personal use 
must be authorized by the Federal, State, county, or local governmental 
agency or department that owns or leases the vehicle and employs the 
officer, and must be incident to law-enforcement functions, such as 
being able to report directly from home to a stakeout or surveillance 
site, or to an emergency situation. Use of an unmarked vehicle for 
vacation or recreation trips cannot qualify as an authorized use.
    (ii) Law enforcement officer. The term law enforcement officer 
means an individual who is employed on a full-time basis by a 
governmental unit that is responsible for the prevention or 
investigation of crime involving injury to persons or property 
(including apprehension or detention of persons for such crimes), who 
is authorized by law to carry firearms, execute search warrants, and to 
make arrests (other than merely a citizen's arrest), and who regularly 
carries firearms (except when it is not possible to do so because of 
the requirements of undercover work). The term ``law enforcement 
officer'' may include an arson investigator if the investigator 
otherwise meets the requirements of this paragraph (k)(6)(ii), but does 
not include Internal Revenue Service special agents.
    (7) Trucks and vans. The substantiation requirements of section 
274(d) and this section apply generally to any pickup truck or van, 
unless the truck or van has been specially modified with the result 
that it is not likely to be used more than a de minimis amount for 
personal purposes. For example, a van that has only a front bench for 
seating, in which permanent shelving that fills most of the cargo area 
has been installed, that constantly carries merchandise or equipment, 
and that has been specially painted with advertising or the company's 
name, is a vehicle not likely to be used more than a de minimis amount 
for personal purposes.
    (8) Examples. The following examples illustrate the provisions of 
paragraphs (k)(3) and (6) of this section:

    Example 1. Detective C, who is a ``law enforcement officer'' 
employed by a state police department, headquartered in City M, is 
provided with an unmarked vehicle (equipped with radio 
communication) for use during off-duty hours because C must be able 
to communicate with headquarters and be available for duty at any 
time (for example, to report to a surveillance or crime site). The 
police department generally has officially authorized personal use 
of the vehicle by C but has prohibited use of the vehicle for 
recreational purposes or for personal purposes outside the state. 
Thus, C's use of the vehicle for commuting between headquarters or a 
surveillance site and home and for personal errands is authorized 
personal use as described in paragraph (k)(6)(i) of this section. 
With respect to these authorized uses the vehicle is not subject to 
the substantiation requirements of section 274(d) and the value of 
these uses is not included in C's gross income.
    Example 2. Detective T is a ``law enforcement officer'' employed 
by City M. T is authorized to make arrests only within M's city 
limits. T, along with all other officers of the force, is ordinarily 
on duty for eight hours each work day and on call during the other 
sixteen hours. T is provided with the use of a clearly marked police 
vehicle in which T is required to commute to his home in City M. The 
police department's official policy regarding marked police vehicles 
prohibits personal use (other than commuting) of the vehicles 
outside the city limits. When not using the vehicle on the job, T 
uses the vehicle only for commuting, personal errands on the way 
between work and home, and personal errands within City M. All use 
of the vehicle by T conforms to the requirements of paragraph (k)(3) 
of this section. Therefore, the value of that use is excluded from 
T's gross income as a working condition fringe and the vehicle is 
not subject to the substantiation requirements of section 274(d).
    Example 3. Director C is employed by City M as the director of 
the City's rescue squad and is provided with a vehicle for use in 
responding to emergencies. The City's rescue

[[Page 32503]]

squad is not a part of City M's police or fire departments. The 
director's vehicle is a sedan which is painted with insignia and 
words identifying the vehicle as being owned by the City's rescue 
squad. C, when not on a regular shift, is on call at all times. The 
City's official policy regarding clearly marked public safety 
officer vehicles prohibits personal use (other than for commuting) 
of the vehicle outside of the limits of the public safety officer's 
obligation to respond to an emergency. When not using the vehicle to 
respond to emergencies, City M authorizes C to use the vehicle only 
for commuting, personal errands on the way between work and home, 
and personal errands within the limits of C's obligation to respond 
to emergencies. With respect to these authorized uses, the vehicle 
is not subject to the substantiation requirements of section 274(d) 
and the value of these uses is not includable in C's gross income.

    (l) Definitions. For purposes of section 274(d) and this section, 
the terms automobile and vehicle have the same meanings as prescribed 
in Sec. Sec.  1.61-21(d)(1)(ii) and 1.61-21(e)(2), respectively. Also, 
for purposes of section 274(d) and this section, the terms employer, 
employee and personal use have the same meanings as prescribed in Sec.  
1.274-6T(e).
    (m) * * * However, paragraph (j)(3) of this section applies to 
expenses paid or incurred after September 30, 2002, and paragraph (k) 
applies to clearly marked public safety officer vehicles, as defined in 
1.274-5(k)(3), only with respect to uses occurring after January 1, 
2009.
    Par. 4. Section 1.274-5T is revised by amending paragraphs (k) and 
(l) as follows:


Sec.  1.274-5T  Substantiation requirements (temporary).

* * * * *
    (k) and (l) [Reserved]. For further guidance, see Sec. Sec.  1.274-
5(k) and (l).
* * * * *
    Par. 5. Section 1.280F-6 is amended by revising paragraph 
(b)(2)(ii) to read:


Sec.  1.280F-6  Special rules and definitions.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Exception. The term ``listed property'' does not include any 
vehicle that is a qualified nonpersonal use vehicle as defined in 
section 274(i) and Sec.  1.274-5(k).
* * * * *

Steven Miller,
Acting Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-12805 Filed 6-6-08; 8:45 am]
BILLING CODE 4830-01-P