[Federal Register Volume 85, Number 24 (Wednesday, February 5, 2020)]
[Rules and Regulations]
[Pages 6424-6428]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02158]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9893]
RIN 1545-BP14


Determination of the Maximum Value of a Vehicle for Use With the 
Fleet-Average and Vehicle Cents-Per-Mile Valuation Rules

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulation.

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SUMMARY: This document sets forth final regulations regarding special 
valuation rules for employers and employees to use in determining the 
amount to include in an employee's gross income for personal use of an 
employer-provided vehicle. The final regulations reflect changes made 
by the Tax Cuts and Jobs Act (TCJA).

DATES: Effective Date: These regulations are effective February 5, 
2020.
    Applicability Date: For dates of applicability, see Sec.  1.61-
21(d)(5)(v)(H) and Sec.  1.61-21(e)(6).

FOR FURTHER INFORMATION CONTACT: Stephanie Caden at (202) 317-4774 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    If an employer provides an employee with a vehicle that is 
available to the employee for personal use, the value of the personal 
use must generally be included in the employee's income under section 
61 of the Internal Revenue Code (the Code). In addition, benefits paid 
as remuneration for employment, including the personal use of employer-
provided vehicles, generally are wages for purposes of the Federal 
Insurance Contributions Act (FICA), the Federal Unemployment Tax Act 
(FUTA) and the Collection of Income Tax at Source on Wages (federal 
income tax withholding). Sections 3121(a), 3306(b), and 3401(a).
    The amount that must be included in the employee's income and wages 
for the personal use of an employer-provided vehicle generally is 
determined by reference to the vehicle's fair market value (FMV). 
However, for many years, Sec.  1.61-21 has provided special valuation 
rules for employer-provided vehicles (the prior final regulations).\1\ 
If an employer chooses to use a special valuation rule, the special 
value is treated as the FMV of the benefit for income tax and 
employment tax purposes. Sec.  1.61-21(b)(4). As discussed further in 
this Background section of this preamble, two such special valuation 
rules, the fleet-average valuation rule and the vehicle cents-per-mile 
valuation rule, are set forth in Sec.  1.61-21(d)(5)(v) and Sec.  1.61-
21(e), respectively. These two special valuation rules are subject to 
limitations, including that they may be used only in connection with 
vehicles having values that do not exceed a maximum amount set forth in 
the regulations.
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    \1\ T.D. 8256, 54 FR 28576, July 6, 1989, as amended by T.D. 
8389, 57 FR 1868, Jan. 16, 1992; T.D. 8457, 57 FR 62192, Dec. 30, 
1992; T.D. 9597, 77 FR 45480, Aug. 1, 2012; T.D. 9849, 84 FR 9231, 
March 14, 2019.
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    Section 1.61-21(e)(1)(iii)(A) of the prior final regulations 
provided that the vehicle cents-per-mile valuation rule could be used 
only to value the personal use of a vehicle having a value no greater 
than $12,800 (the sum of the maximum recovery deductions allowable 
under section 280F(a)(2) for the recovery period of the vehicle). 
Section 1.61-21(d)(5)(v)(D) of the prior final regulations provided 
that the fleet-average valuation rule could be used only to value the 
personal use of vehicles having values no greater than $16,500. (The 
fleet-average valuation rule uses the term ``automobile'' rather than 
``vehicle.'' For convenience, this preamble uses the term ``vehicle'' 
except in specific discussions of the fleet-average valuation rule or 
the section 280F depreciation limitations.) Sections 1.61-
21(d)(5)(v)(D) and 1.61-21(e)(1)(iii)(A) of the prior final regulations 
provided that each of these maximum values was adjusted annually 
pursuant to section 280F(d)(7).

1. The Fleet-Average Valuation Rule

    The fleet-average valuation rule is an optional component of a 
special valuation rule called the automobile lease valuation rule set 
forth in Sec.  1.61-21(d). Under the automobile lease valuation rule, 
the value of the personal use of an employer-provided automobile 
available to an employee for an entire year is the portion of the 
annual lease value determined under the regulations (Annual Lease 
Value) relating to the availability of the automobile for personal use. 
Furthermore, provided the FMV of the automobile does not exceed the 
maximum value permitted under Sec.  1.61-21(d)(5)(v), an employer with 
a fleet of 20 or more automobiles may use a fleet-average value for 
purposes of calculating the Annual Lease Value of any automobile in the 
fleet.
    The fleet-average value is the average of the fair market values of 
all the automobiles in the fleet. However, Sec.  1.61-21(d)(5)(v)(D) of 
the prior final regulations provided that the value of an employee's 
personal use of an automobile could not be determined under the fleet-
average valuation rule for a calendar year if the FMV of the automobile 
on the first date the automobile was made available to the employee 
exceeded the base value of $16,500, as adjusted annually pursuant to 
section 280F(d)(7). Section 1.61-21(d)(5)(v)(D) provided that the first 
such adjustment would be for calendar year 1989, subject to minor 
modifications to the section 280F(d)(7) formula specified in the 
regulations. In other words, under the prior final regulations, the 
maximum value for use of the fleet-average valuation rule was the base 
value of $16,500, as adjusted annually under section 280F(d)(7) every 
year since 1989.
    Prior to enactment of TCJA, the automobile price inflation 
adjustment of section 280F(d)(7)(B) was calculated using the ``new 
car'' component of the Consumer Price Index (CPI) ``automobile 
component.'' Beginning in 2005, the IRS began to calculate the price 
inflation adjustment for trucks and vans separately from cars using the 
``new truck'' component of the CPI, and continued using the ``new car'' 
component of the CPI for automobiles other than trucks and vans. See 
Rev. Proc. 2005-48, 2005-32 I.R.B. 271. For 2017, the year of the 
enactment of TCJA, the maximum value for use of this rule was $21,100 
for a passenger automobile and $23,300 for a truck or van. See Notice 
2017-03, 2017-2 I.R.B. 368.

[[Page 6425]]

    Section 1.61-21(d)(5)(v)(B) provides that the fleet-average 
valuation rule may be used by an employer as of January 1 of any 
calendar year following the calendar year in which the employer 
acquires a sufficient number of automobiles to total a fleet of 20 or 
more, each one satisfying the maximum value requirement of Sec.  1.61-
21(d)(5)(v)(D). The Annual Lease Value calculated for automobiles in 
the fleet, based on the fleet-average value, must remain in effect for 
the period that begins with the first January 1 the fleet-average 
valuation rule is applied by the employer to the automobiles in the 
fleet and ends on December 31 of the subsequent calendar year. The 
Annual Lease Value for each subsequent two-year period is calculated by 
determining the fleet average value of the automobiles in the fleet as 
of the first January 1 of such period. An employer may cease using the 
fleet-average valuation rule as of any January 1.

2. The Vehicle Cents-Per-Mile Valuation Rule

    Another special valuation rule is the vehicle cents-per-mile rule 
in Sec.  1.61-21(e). Under Sec.  1.61-21(e), if an employer provides an 
employee with the use of a vehicle that the employer reasonably expects 
will be regularly used in the employer's trade or business throughout 
the calendar year (or such shorter period as the vehicle may be owned 
or leased by the employer), or that satisfies the requirements of Sec.  
1.61-21(e)(1)(ii) (i.e., the vehicle is actually driven at least 10,000 
miles in the year and use of the vehicle during the year is primarily 
by employees), the value of the personal use may be determined based on 
the applicable standard mileage rate multiplied by the total number of 
miles the vehicle is driven by the employee for personal purposes.
    Section 1.61-21(e)(1)(iii)(A) provides that the value of the 
personal use may not be determined under the vehicle cents-per-mile 
valuation rule for a calendar year if the fair market value of the 
vehicle on the first date the vehicle is made available to the employee 
exceeds the sum of the maximum recovery deductions allowable under 
section 280F(a) for a five-year period for an automobile first placed 
in service during that calendar year (whether or not the automobile is 
actually placed in service during that year), as adjusted by section 
280F(d)(7). The prior final regulations provided that, under this rule, 
with respect to a vehicle placed in service in or after 1989, the 
limitation on value was $12,800, as adjusted under section 280F(d)(7). 
In other words, under the prior final regulations, the maximum value of 
a vehicle for use of the vehicle cents-per-mile valuation rule was the 
base value of $12,800, as adjusted annually under section 280F(d)(7) 
since 1989. As with the fleet-average valuation rule, beginning in 
2005, the IRS calculated the price inflation adjustment for trucks and 
vans separately from cars. See Rev. Proc. 2005-48. For 2017, the 
maximum value for use of the vehicle cents-per-mile valuation rule was 
$15,900 for a passenger automobile and $17,800 for a truck or van. See 
Notice 2017-03.
    Section 1.61-21(e)(5)(i) states that an employer must adopt the 
vehicle cents-per-mile valuation rule for a vehicle to take effect by 
the first day on which the vehicle is used by an employee of the 
employer for personal use (or, if another special valuation rule called 
the commuting valuation rule of Sec.  1.61-21(f) is used when the 
vehicle is first used by an employee of the employer for personal use, 
the first day on which the commuting valuation rule is not used). 
Section 1.61-21(e)(5)(ii) also provides, in part, that once the vehicle 
cents-per-mile valuation rule has been adopted for a vehicle by an 
employer, the rule must be used by the employer for all subsequent 
years in which the vehicle qualifies for use of the rule, except that 
the employer may, for any year during which use of the vehicle 
qualifies for the commuting valuation rule of Sec.  1.61-21(f), use the 
commuting valuation rule with respect to the vehicle.

3. TCJA Changes and the Maximum Vehicle Values for 2018 and 2019

    TCJA made the following amendments to the Code:
    (1) For owners of passenger automobiles, section 280F(a), as 
modified by section 13202(a)(1) of TCJA, imposes dollar limitations on 
the depreciation deduction for the year the taxpayer places the 
passenger automobile in service and for each succeeding year. The 
amendments made by TCJA substantially increase the maximum annual 
dollar limitations on the depreciation deductions for passenger 
automobiles. The new dollar limitations are based on the depreciation, 
over a five-year recovery period, of a passenger automobile with a cost 
of $50,000 (formerly $12,800, as adjusted).
    (2) Section 11002(d)(8) of TCJA amended section 280F(d)(7)(B) 
effective for tax years beginning after December 31, 2017. Pursuant to 
these amendments, the price inflation amount for automobiles (including 
trucks and vans) is calculated using both the CPI automobile component 
and the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) 
automobile component.
a. Notice 2019-08--The Maximum Value for 2018
    To implement the changes described above, Notice 2019-08, 2019-3 
I.R.B. 354, provides interim guidance for 2018 on new procedures for 
calculating the price inflation adjustments to the maximum vehicle 
values for use with the special valuation rules under Sec.  1.61-21(d) 
and (e) using section 280F(d)(7), as modified by sections 11002 and 
13202 of the Act. Notice 2019-08 states that the Treasury Department 
and the IRS anticipate that further guidance will be issued in the form 
of proposed regulations and expect that the regulations will be 
consistent with the rules set forth in Notice 2019-08.
    Notice 2019-08 provides that, consistent with the substantial 
increase in the dollar limitations on depreciation deductions under 
section 280F(a), as modified by section 13202(a)(1) of TCJA, the 
Treasury Department and the IRS intend to amend Sec.  1.61-21(d) and 
(e) to incorporate a higher base value of $50,000 as the maximum value 
for use of the vehicle cents-per-mile and fleet-average valuation rules 
effective for the 2018 calendar year. Notice 2019-08 further states 
that the Treasury Department and the IRS intend that the regulations 
will be modified to provide that this $50,000 base value will be 
adjusted annually using section 280F(d)(7) for 2019 and subsequent 
years. Accordingly, Notice 2019-08 provides that, for 2018, the maximum 
value for use of the vehicle cents-per-mile and fleet-average valuation 
rules is $50,000.
    Finally, for 2018 and 2019, Notice 2019-08 provides that the 
Treasury Department and the IRS will not publish separate maximum 
values for trucks and vans for use with the fleet-average and vehicle 
cents-per-mile valuation rules. As noted above, TCJA amended section 
280F(d)(7)(B) to make inflation adjustments based on the CPI and C-CPI-
U automobile component. The C-CPI-U automobile component does not 
currently have separate components for new cars and new trucks. 
Accordingly, due to the lack of data, the Treasury Department and the 
IRS will publish only one maximum value of a vehicle for use with the 
vehicle cents-per-mile and fleet-average valuation rules beginning in 
2019.
b. Notice 2019-34--The Maximum Vehicle Value for 2019
    Notice 2019-34, 2019-22 I.R.B. 1257, provides that the inflation-
adjusted

[[Page 6426]]

maximum value of an employer-provided vehicle (including cars, vans, 
and trucks) first made available to employees for personal use in 
calendar year 2019 for which the vehicle cents-per-mile valuation rule 
provided under Sec.  1.61-21(e), or the fleet-average valuation rule 
provided under Sec.  1.61-21(d), may be used, is $50,400. Notice 2019-
34 also provides information about the manner in which the Treasury 
Department and the IRS intend to publish this maximum vehicle value in 
the future.
    As noted in Notice 2019-34, Rev. Proc. 2010-51, 2010-51 I.R.B. 883, 
as modified by Rev. Proc. 2019-46, 2019-49 I.R.B. 1301, provides rules 
for using optional standard mileage rates in computing the deductible 
costs of operating an automobile for business, charitable, medical, or 
moving expense purposes. Section 2.12(1) of Rev. Proc. 2010-51 provides 
that the IRS publishes both the standard mileage rates for the use of 
an automobile for business, charitable, medical, and moving expense 
purposes, and the maximum standard automobile cost that may be used in 
computing the allowance under a fixed and variable rate (FAVR) plan, in 
a separate annual notice. See, e.g., Notice 2019-02, 2019-02 I.R.B. 
281.
    Notice 2019-34 indicates that, in amending Sec.  1.61-21(d) and (e) 
to incorporate a higher base value of $50,000 as the maximum value for 
use with the vehicle cents-per-mile and the fleet-average valuation 
rules, the IRS and Treasury Department expect that the maximum value 
for use of those rules for 2019 and subsequent years will be the same 
as the maximum standard automobile cost that may be used in computing 
the allowance under a FAVR plan. Accordingly, Notice 2019-34 provides 
that the maximum value for use with the fleet-average and vehicle 
cents-per-mile valuation rules will be published in the annual notice 
providing the standard mileage rates for use of an automobile for 
business, charitable, medical, and moving expense purposes and the 
maximum standard automobile cost that may be used in computing the 
allowance under a FAVR plan.
    Notice 2019-34 also provides that the Treasury Department and the 
IRS intend to revise Sec.  1.61-21(d) to include a transition rule for 
any employer that did not qualify to use the fleet-average valuation 
rule prior to January 1, 2018 because the inflation-adjusted maximum 
value requirement of Sec.  1.61-21(d)(5)(v)(D), as published by the IRS 
in a notice or revenue procedure applicable to the year the automobile 
was first made available to any employee of the employer, was not met. 
In such a case, under the transition rule, the employer may adopt the 
fleet-average valuation rule for 2018 or 2019, provided the 
requirements of Sec.  1.61-21(d)(5)(v) are met for that year using the 
maximum values set forth in Notice 2019-08 ($50,000) or Notice 2019-34 
($50,400), respectively.
    In addition, Notice 2019-34 states that the Treasury Department and 
the IRS intend to revise Sec.  1.61-21(e) to provide a transition rule 
for vehicles first made available to employees for personal use before 
calendar year 2018, if the employer did not qualify under Sec.  1.61-
21(e)(5) to adopt the vehicle cents-per-mile valuation rule for the 
vehicle on the first day on which the vehicle was used by the employee 
for personal use because the fair market value of the vehicle exceeded 
the inflation-adjusted limitation of Sec.  1.61-21(e)(1)(iii) as 
published by the IRS in a notice or revenue procedure applicable to the 
year the vehicle was first used by the employee for personal use. In 
such a case, under the transition rule, the employer may first adopt 
the vehicle cents-per-mile valuation rule for the 2018 or 2019 taxable 
year based on the maximum fair market value of a vehicle for purposes 
of the vehicle cents-per-mile valuation rule set forth in Notice 2019-
08 ($50,000) or Notice 2019-34 ($50,400), respectively.
    Similarly, Notice 2019-34 also provides that the Treasury 
Department and the IRS intend to amend Sec.  1.61-21(e) to provide a 
transition rule for a vehicle first placed in service before calendar 
year 2018 if the commuting valuation rule of Sec.  1.61-21(f) was used 
when the vehicle was first used by an employee of the employer for 
personal use, and the employer did not qualify to switch to the vehicle 
cents-per-mile valuation rule on the first day on which the commuting 
valuation rule was not used because the vehicle had a fair market value 
in excess of the inflation-adjusted maximum permitted under Sec.  1.61-
21(e)(1)(iii) as published by the IRS in a notice or revenue procedure 
applicable to the year the commuting valuation rule was first not used. 
Under the transition rule, the employer may adopt the vehicle cents-
per-mile valuation rule for the 2018 or 2019 taxable year based on the 
maximum fair market value of the vehicle for purposes of the vehicle 
cents-per-mile valuation rule set forth in Notice 2019-08 or Notice 
2019-34, respectively.
    With respect to the transition rules described above, Notice 2019-
34 adds that, consistent with Sec.  1.61-21(e)(5), an employer that 
adopts the vehicle cents-per-mile valuation rule must continue to use 
the rule for all subsequent years in which the vehicle qualifies for 
use of the rule, except that the employer may, for any year during 
which use of the vehicle qualifies for the commuting valuation rule of 
Sec.  1.61-21(f), use the commuting valuation rule with respect to the 
vehicle.

4. Notice of Proposed Rulemaking

    On August 23, 2019, a notice of proposed rulemaking was published 
in the Federal Register (84 FR 44258) that was consistent with Notice 
2019-08 and Notice 2019-34 and reflected changes made by TCJA to the 
depreciation limitations in section 280F. The notice of proposed 
rulemaking proposed revisions to Sec.  1.61-21(d) and Sec.  1.61-21(e) 
to increase, effective for the 2018 calendar year, the maximum base 
fair market value of a vehicle for use of the fleet-average and vehicle 
cents-per-mile valuation rules to $50,000. The proposed regulations 
further provided that the maximum fair market value of a vehicle for 
use of the fleet-average and vehicle cents-per-mile valuation rules 
will be adjusted annually under section 280F(d)(7), as amended by the 
TCJA, and the adjusted maximum fair market value will be included in 
the annual notice published by the IRS providing the standard mileage 
rates for the use of an automobile for business, charitable, medical, 
and moving expense purposes and the maximum standard automobile cost 
for purposes of an allowance under a FAVR plan. See, e.g., Notice 2019-
02. Additionally, the proposed regulations provide transition rules 
that permit employers that could not adopt the fleet-average or vehicle 
cents-per-mile valuation rules prior to 2018 (because a vehicle had a 
fair market value in excess of the maximum permitted under the prior 
final regulations), to use the special valuation rules for the first 
time in 2018 or 2019.
    No public hearing on the proposed regulations was requested or 
held. No comments responding to the proposed regulations were received. 
Therefore, the proposed regulations are adopted as final regulations 
without substantive change.

Explanation of Provisions

    These final regulations update the fleet-average and vehicle cents-
per-mile valuation rules described in Sec.  1.61-21(d) and (e), 
respectively, to align the limitations on the maximum vehicle fair 
market values for use of these special valuation rules with the changes 
made by the Act to the depreciation limitations in section 280F. 
Specifically, consistent with the substantial increase in the dollar 
limitations on depreciation

[[Page 6427]]

deductions under section 280F(a), these final regulations increase, 
effective for the 2018 calendar year, the maximum base fair market 
value of a vehicle for use of the fleet-average or vehicle cents-per-
mile valuation rule to $50,000. Consistent with Sec. Sec.  1.61-
21(d)(5)(v)(D) and 1.61-21(e)(1)(iii)(A) of prior final regulations, 
the maximum fair market value of a vehicle for purposes of the fleet-
average and vehicle cents-per-mile valuation rules is adjusted annually 
under section 280F(d)(7). This annual adjustment will be calculated in 
accordance with section 280F(d)(7) as amended by TCJA.
    Consistent with the expectation expressed in Notice 2019-34 and in 
the notice of proposed rulemaking, the inflation-adjusted maximum fair 
market value for a vehicle for purposes of the fleet-average and 
vehicle cents-per-mile valuation rules will be included in the annual 
notice published by the IRS providing the standard mileage rates for 
the use of an automobile for business, charitable, medical, and moving 
expense purposes and the maximum standard automobile cost for purposes 
of an allowance under a FAVR plan. See, e.g., Notice 2019-02.
    Furthermore, consistent with Notice 2019-34 and the proposed 
regulations, the following transition rules are included in these final 
regulations:
    (1) With respect to the fleet-average valuation rule, if an 
employer did not qualify to use the fleet-average valuation rule prior 
to January 1, 2018, with respect to an automobile because the fair 
market value of the automobile exceeded the inflation-adjusted maximum 
value requirement of Sec.  1.61-21(d)(5)(v)(D), as published by the IRS 
in a notice or revenue procedure applicable to the year the automobile 
was first made available to any employee of the employer, the employer 
may adopt the fleet-average valuation rule for 2018 or 2019, provided 
the fair market value of the automobile does not exceed $50,000 on 
January 1, 2018, or $50,400 on January 1, 2019, respectively.
    (2) With respect to the vehicle cents-per-mile valuation rule, for 
a vehicle first made available to any employee of the employer for 
personal use before calendar year 2018, if an employer did not qualify 
under Sec.  1.61-21(e)(5) to adopt the vehicle cents-per-mile valuation 
rule on the first day on which the vehicle was used by the employee for 
personal use because the fair market value of the vehicle exceeded the 
inflation-adjusted limitation of Sec.  1.61-21(e)(1)(iii), as published 
by the IRS in a notice or revenue procedure applicable to the year the 
vehicle was first used by the employee for personal use, the employer 
may first adopt the vehicle cents-per-mile valuation rule for the 2018 
or 2019 taxable year with respect to the vehicle, provided the fair 
market value of the vehicle does not exceed $50,000 on January 1, 2018, 
or $50,400 on January 1, 2019, respectively. Similarly, if the 
commuting valuation rule of Sec.  1.61-21(f) was utilized when the 
vehicle was first used by an employee of the employer for personal use, 
and the employer did not qualify to switch to the vehicle cents-per-
mile valuation rule on the first day on which the commuting valuation 
rule was not used because the vehicle had a fair market value in excess 
of the inflation-adjusted limitation of Sec.  1.61-21(e)(1)(iii), as 
published by the IRS in a notice or revenue procedure applicable to the 
year the commuting valuation rule was first not used, the employer may 
adopt the vehicle cents-per-mile valuation rule for the 2018 or 2019 
taxable year, provided the fair market value of the vehicle does not 
exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, 
respectively. However, consistent with Sec.  1.61-21(e)(5), an employer 
that adopts the vehicle cents-per-mile valuation rule must continue to 
use the rule for all subsequent years in which the vehicle qualifies 
for use of the rule, except that the employer may, for any year during 
which use of the vehicle qualifies for the commuting valuation rule of 
Sec.  1.61-21(f), use the commuting valuation rule with respect to the 
vehicle.

Special Analyses

    These final regulations are not subject to review under section 
6(b) of Executive Order 12866 pursuant to the Memorandum of Agreement 
(April 11, 2018) between the Department of the Treasury and the Office 
of Management and Budget regarding review of tax regulations.
    It is hereby certified that these final regulations will not have a 
significant economic impact on a substantial number of small entities 
pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This 
certification is based on the fact that the final regulations update 
existing regulations to comport with the statutory changes to section 
280F made by the Act. Although the final regulations might affect a 
substantial number of small entities, the economic impact of the final 
regulations is not expected to be significant.
    Since the current vehicle valuation rules in the regulations are 
tied to inflation adjustments under section 280F, the statutory changes 
to section 280F necessitate modifications to the procedures for 
calculating annual inflation adjustments to the maximum fair market 
value of a vehicle permitted for use with the fleet-average and vehicle 
cents-per-mile special valuation rules. These revised special valuation 
rules are consistent with the base values and methodology used for 
section 280F purposes and simplify the determination of the amount 
employers must include in employees' income and wages for income and 
employment tax purposes for the personal use of employer-provided 
vehicles. The modifications made by these final regulations to the 
maximum fair market value of a vehicle permitted for use with the 
fleet-average and vehicle cents-per-mile special valuation rules, and 
the transition rules provided in connection with these final 
regulations, increase the number of employers and employees that may 
take advantage of the special valuation rules, without increasing costs 
to the employer.
    Pursuant to section 7805(f), the proposed regulations preceding 
these final regulations was submitted to the Chief Counsel for Advocacy 
of the Small Business Administration for comment on its impact on small 
business. No comments were received.

Drafting Information

    The principal author of these regulations is Stephanie Caden of the 
Office of the Associate Chief Counsel (Employee Benefits, Exempt 
Organizations, and Employment Tax). However, other personnel from the 
IRS and the Treasury Department participated in their development.

Statement of Availability

    The IRS Notices, Revenue Procedures and the Notice of Proposed 
Rulemaking cited in this preamble are published in the Internal Revenue 
Bulletin (or Cumulative Bulletin) and are available from the 
Superintendent of Documents, U.S. Government Publishing Office, 
Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

    Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.61-21 is amended by revising paragraph (d)(5)(v)(D), 
adding

[[Page 6428]]

paragraphs (d)(5)(v)(G) and (H), revising paragraph (e)(1)(iii)(A), 
revising paragraph (e)(5)(i), and adding paragraphs (e)(5)(vi) and 
(e)(6), to read as follows:


Sec.  1.61-21  Taxation of fringe benefits.

* * * * *
    (d) * * *
    (5) * * *
    (v) * * *
    (D) Limitations on use of fleet-average rule. The rule provided in 
this paragraph (d)(5)(v) may not be used for any automobile the fair 
market value of which (determined pursuant to paragraphs (d)(5)(i) 
through (iv) of this section as of the first date on which the 
automobile is made available to any employee of the employer for 
personal use) exceeds $50,000, as adjusted by section 280F(d)(7). The 
first such adjustment shall be for calendar year 2019. In addition, the 
rule provided in this paragraph (d)(5)(v) may only be used for 
automobiles that the employer reasonably expects will regularly be used 
in the employer's trade or business. For rules concerning when an 
automobile is regularly used in the employer's business, see paragraph 
(e)(1)(iv) of this section.
* * * * *
    (G) Transition rule for 2018 and 2019. Notwithstanding paragraph 
(d)(5)(v)(B) of this section, an employer that did not qualify to use 
the fleet-average valuation rule prior to January 1, 2018, with respect 
to any automobile (including a truck or van) because the fair market 
value of the vehicle exceeded the inflation-adjusted maximum value 
requirement of paragraph (d)(5)(v)(D) of this section, as published by 
the Service in a notice or revenue procedure applicable to the year the 
vehicle was first made available to any employee of the employer, may 
adopt the fleet-average valuation rule for 2018 or 2019 with respect to 
the vehicle, provided the fair market value of the vehicle does not 
exceed $50,000 on January 1, 2018, or $50,400 on January 1, 2019, 
respectively.
    (H) Applicability date. Paragraphs (d)(5)(v)(D), and (G) of this 
section apply to taxable years beginning on or after February 5, 2020. 
Notwithstanding the first sentence of this paragraph (d)(5)(v)(H), any 
taxpayer may choose to apply paragraph (d)(5)(v)(G) of this section 
beginning on or after January 1, 2018.
* * * * *
    (e) * * *
    (1) * * *
    (iii) * * *
    (A) In general. The value of the use of an automobile (as defined 
in paragraph (d)(1)(ii) of this section) may not be determined under 
the vehicle cents-per-mile valuation rule of this paragraph (e) for a 
calendar year if the fair market value of the automobile (determined 
pursuant to paragraphs (d)(5)(i) through (iv) of this section as of the 
first date on which the automobile is made available to any employee of 
the employer for personal use) exceeds $50,000, as adjusted by section 
280F(d)(7). The first such adjustment shall be for calendar year 2019.
* * * * *
    (5) * * *
    (i) Use of the vehicle cents-per-mile valuation rule by an 
employer. An employer must adopt the vehicle cents-per-mile valuation 
rule of this paragraph (e) for a vehicle to take effect by the first 
day on which the vehicle is used by an employee of the employer for 
personal use (or, if the commuting valuation rule of paragraph (f) of 
this section is used when the vehicle is first used by an employee of 
the employer for personal use, the first day on which the commuting 
valuation rule is not used).
* * * * *
    (vi) Transition rule for 2018 and 2019. For a vehicle first made 
available to any employee of an employer for personal use before 
calendar year 2018, an employer that did not qualify under this 
paragraph (e)(5) to adopt the vehicle cents-per-mile valuation rule on 
the first day on which the vehicle is used by the employee for personal 
use because the fair market value of the vehicle exceeded the 
inflation-adjusted limitation of paragraph (e)(1)(iii) of this section, 
as published by the Service in a notice or revenue procedure applicable 
to the year the vehicle was first used by the employee for personal 
use, may first adopt the vehicle cents-per-mile valuation rule for the 
2018 or 2019 taxable year, provided the fair market value of the 
vehicle does not exceed $50,000 on January 1, 2018, or $50,400 on 
January 1, 2019, respectively. Similarly, for a vehicle first made 
available to any employee of the employer for personal use before 
calendar year 2018, if the commuting valuation rule of paragraph (f) of 
this section was used when the vehicle was first used by the employee 
for personal use, and the employer did not qualify to switch to the 
vehicle cents-per-mile valuation rule of this paragraph (e) on the 
first day on which the commuting valuation rule of paragraph (f) of 
this section was not used because the vehicle had a fair market value 
in excess of the inflation-adjusted limitation of paragraph (e)(1)(iii) 
of this section, as published by the Service in a notice or revenue 
procedure applicable to the year the commuting valuation rule was first 
not used, the employer may adopt the vehicle cents-per-mile valuation 
rule for the 2018 or 2019 taxable year, provided the fair market value 
of the vehicle does not exceed $50,000 on January 1, 2018, or $50,400 
on January 1, 2019, respectively. However, in accordance with paragraph 
(e)(5)(ii) of this section, an employer that adopts the vehicle cents-
per-mile valuation rule pursuant to this paragraph (e)(5)(vi) must 
continue to use the rule for all subsequent years in which the vehicle 
qualifies for use of the rule, except that the employer may, for any 
year during which use of the vehicle qualifies for the commuting 
valuation rule of paragraph (f) of this section, use the commuting 
valuation rule with regard to the vehicle.
    (6) Applicability date. Paragraphs (e)(1)(iii)(A) and (e)(5)(i) and 
(vi) of this section apply to taxable years beginning on or after 
February 5, 2020. Notwithstanding the first sentence of this paragraph 
(e)(6), any taxpayer may choose to apply paragraph (e)(5)(vi) of this 
section beginning on or after January 1, 2018.
* * * * *

Sunita Lough,
Deputy Commissioner for Services and Enforcement.
    Approved: January 17, 2020.
David J. Kautter,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2020-02158 Filed 2-4-20; 8:45 am]
 BILLING CODE 4830-01-P