2021-01-13
Notice 2021-7 (Jan. 4, 2021)
Due to the COVID-19 pandemic, certain employers and employees who use the automobile lease valuation rule to determine the value of an employee’s personal use of an employer-provided automobile may switch to the vehicle cents-per-mile method.
If an employer provides an employee with an automobile that is available to the employee for personal use, the value of the personal use must be included in the employee’s gross income. Treas. Reg. section 1.61-21(b)(1) states that an employee must include in gross income the amount by which the fair market value of a fringe benefit exceeds the sum of: (1) the amount, if any, paid for the benefit by or on behalf of the recipient; and (2) the amount, if any, specifically excluded from gross income by some other section of subtitle A of the Internal Revenue Code of 1986.
Under the automobile lease valuation rule, the employer determines the fair market value of the automobile when it was first made available to any employee and applies the corresponding “Annual Lease Value” from the table provided in section 1.61-21(d)(2)(iii).
Due to the suddenness and unexpected onset of the COVID-19 pandemic, the Department of the Treasury and the Internal Revenue Service are providing relief from the consistency rules in sections 1.61-21(d)(7) and 1.61-21(e)(5). Accordingly, an employer using the automobile lease valuation rule for the 2020 calendar year may instead use the vehicle cents-per-mile valuation rule beginning on March 13, 2020, notwithstanding the consistency rules in section 1.61-21(d)(7), if, at the beginning of the 2020 calendar year, the employer reasonably expected that an automobile with a fair market value 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 this purpose, the COVID-19 pandemic is considered to have commenced on March 13, 2020, the date of the President’s emergency declaration. Therefore, employers that choose to switch from the automobile lease valuation rule to the vehicle cents-per-mile valuation rule in the 2020 calendar year must prorate the value of the vehicle using the automobile lease valuation rule for January 1, 2020, through March 12, 2020. Employers should multiply the applicable Annual Lease Value by a fraction, the numerator of which is the number of days during the period beginning on January 1, 2020, and ending on March 12, 2020 (72 days), and the denominator of which is 365. As of March 13, 2020, employers may begin using the vehicle-cents-per-mile valuation rule. Employees using the automobile lease valuation rule whose employers switch from the automobile lease valuation rule to the vehicle cents-per-mile valuation rule under this notice must also switch to the vehicle cents-per-mile valuation rule.
Employers that originally used the automobile lease valuation rule to calculate the value of the personal use of an employer-provided automobile during 2020 and that want to instead begin using the vehicle cents-per-mile valuation rule during 2020 based on the relief provided in this notice may use the rules in Announcement 85-113 for reporting and withholding on taxable noncash fringe benefits, or the adjustment process under section 6413 or the refund claim process under section 6402 to correct any overpayment of federal employment taxes on these benefits (for information on these adjustment and refund claim processes, see the regulations under these sections, Rev. Rul. 2009-39, 2009-52 I.R.B. 951, section 13 of Publication 15 (Circular E), Employer’s Tax Guide, and the Instructions for Form 941-X, Adjusted Employer’s QUARTERLY Federal Tax Return or Claim for Refund).