Cents-Per-Mile Method of Valuing Use

April 13, 2006

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The value of any personal use by an employee of your vehicle may be calculated by multiplying the standard mileage rate (44.5 cents per mile in 2006 and 48.5 cents per mile in 2007) by the number of miles driven by an employee for personal purposes, if you provide your employee with the use of a vehicle that either:

you reasonably expect will be regularly used in your business throughout the calendar year (or a shorter period that the vehicle is owned or leased by you)
is driven primarily by employees for at least 10,000 miles in a calendar year.

A vehicle is considered "regularly used" in an employer's business if either at least 50 percent of its total mileage for the year is for the employer's business or it is generally used each workday in an employer-sponsored car pool to transport at least three employees to and from work. You may not use the cents-per-mile rate unless the same or comparable vehicle could be leased on a cents-per-mile basis. Once the cents-per-mile rate has been adopted for a vehicle, you must continue to use that valuation method until the vehicle no longer qualifies.

For 2006, the cents-per-mile method can be used only for cars that have a fair market value of $15,000 ($15,100 in 2007) or less on the day they were first made available to an employee. The 2006 maximum value for a truck or van is $16,400 ($16,100 in 2007). This dollar amount is adjusted periodically to reflect inflation. For cars having a value in excess of that amount, the value of the availability of the car is to be determined under the general fair market value rule or the annual lease value method.

Maintenance and insurance are included in the standard mileage rate. However, no reduction in the rate is allowed if you do not provide these services. The rate also includes the fair market value of employer-provided fuel for miles driven in the United States, Canada, and Mexico. If fuel is not provided by you as the employer, the rate may be reduced by no more than 5.5 cents.