By Matthew Betz, Vice President Business Development, Fleet at Motus, LLC
“I follow three rules: Do the right thing, do the best you can, and always show people you care.” — Lou Holtz
Most people recognize Lou Holtz for his long and distinguished football career, but as it turns out, he has a life philosophy that we can all use in our personal and professional lives. Whether you are a mobile employee, or a fleet professional, Lou’s philosophy fits the need for IRS compliance particularly well. All drivers should do the right thing by keeping an IRS-compliant mileage log, fleet managers can do their best to help drivers understand the rules and to be compliant, and we can show drivers that we care by showing them how to avoid IRS audits.
Let’s take a closer look:
The IRS requires the calculation and reporting of imputed income associated with all personal use of a company vehicle. The IRS further requires employers to provide and enforce a written policy mandating the following for all employees provided with a fleet vehicle:
1. Drivers should complete and maintain detailed daily mileage logs
2. Drivers and the company should correctly account for commute mileage in accordance with applicable IRS commute deduction policies
3. Accurately report annual business use percent for calculation of imputed income
As I talk to fleet managers and fleet drivers around the country, it always surprises me that while most people have a vague understanding of the rules above, it is clear that not everyone understands exactly how the rules apply to them, or exactly what the IRS expects each driver to record regarding their daily driving activity.
Let’s start with the requirement for drivers to “complete and maintain a detailed daily mileage log”. At a minimum, the IRS expects that the daily mileage log contain the date, location, purpose, and business miles driven for each business stop made during the work day. It is important that the driver not include personal miles for side trips made during the day. Perhaps most important is that the driver comply with IRS commute deduction guidelines.
According to IRS guidelines, each employee is assigned a permanent work location by his or her employer. A permanent work location is defined as the location where that employee performs the majority (more than 50%) of his or her job duties. That location may be identified as one of the following “office types”:
1. Home Office – An employee who performs more than 50% of his/her job duties while at home. If that employee must drive from his/her home office location to another work location or to multiple work locations, all mileage recorded is considered business mileage and no commute deduction would apply.
2. Corporate Office – An employee who performs more that 50% of his/her job duties while at a specific location other than his or her home, such as a corporate office building. Travel between home and the office is considered commute mileage. If the driver travels directly from home to an alternate business location, such as a customer meeting, there is no commute.
3. No Office – An employee who performs more than 50% of his/her job duties while at various locations. The mileage recorded between his/her home location and the first work location visited that day is considered commute mileage. The same is true between the last business location and home at the end of the day. Exceptions are permissible if the first and/or last location visited is located outside of the driver’s metropolitan area.
Based on the definitions above, most fleet professionals agree that most fleet drivers should be considered No Office employees. After all, we typically don’t issue company vehicles to employees that don’t use them primarily to conduct business on a daily basis.
Perhaps more importantly, the IRS has signaled their intention to prioritize fringe benefits as an area of audit focus, especially the personal use of company vehicles. Studies have shown under reporting of personal use by drivers, as well as failure of employers to include accurate imputed income on drivers’ Form 1099 or W2.
So, how can we apply a lesson from Lou Holtz and help the Modern Mobile Workers that we work with?
Do the Right Thing – Drivers can help themselves and the organization that they work for by accurately recording commute, business and personal miles.
Do the Best You Can – We can help drivers to “do the right thing” by researching the options, correctly designating their work place, and creating the best policy for your organization.
Always Show people you Care – By creating the best policy for your organization, you can help reduce costs, steer drivers away from IRS audits, keep your company compliant, and be seen as a caring member of the team.
As always, I welcome your comments, questions, or concerns. I can be reached at [email protected].
