The Internal Revenue Service responded favorably to a request from NAFA to provide relief to fleets in applying the vehicle valuation rules in 2020. According to the IRS, employers will be able to use the vehicle cents-per-mile valuation rule beginning March 13, 2020 instead of the lease valuation rule, notwithstanding IRS consistency rules that prevent switching valuation methods.
NAFA sought relief from the IRS following the pandemic shutdown, when many companies suspended business operations or called for employees to work from home, drastically reducing the use of fleet vehicles for business purposes. In these circumstances, applying the Annual Lease Value methodology significantly distorted the value of an employee’s personal use of the company vehicle.
In its January 5, 2021 notice (Notice 2021-7), entitled “COVID-19 Relief for Employers Using the Automobile Lease Valuation Rule,” the IRS specifically provides that an employer using the automobile lease valuation rule for 2020 may instead use the vehicle cents-per-mile rule beginning March 13, 2020, provided the employer reasonably expected that an automobile with an FMV not exceeding $50,400 would be regularly used in the employer’s trade or business throughout the year, but due to the COVID-19 pandemic, the automobile was not regularly used in the employer’s trade or business throughout the year.
For 2021, the employer will have the option of returning to use of the Automobile Lease Valuation Rule, or continuing use of the cents-per-mile valuation rule, provided that the requirements of Section 1.61-21(e) are met going forward.
Fleet managers should also consult with legal or tax counsel.
