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FMV for YE auto calculation

I could use some help on Fair Market Value and YE personal usage taxation.

I have been with this organization for 3 years as the Payroll Manager and during the Year End process I calculate the taxable benefit of personal usage on leased vehicles. I follow Publication 15-B for direction on how to apply the FMV calculation.

Here are the details.
The employee took delivery of the new car on 6/24/13, the car was a 2013 Buick. The value of the car was $27,903. For the 2013 YE process we determined the annual lease value to be $7,250.00 based upon the value in Pub 15-B. We ask our employees to fill out a summary around November 1 that records the beginning and ending mileage from Nov 1 of the previous year to Oct 31 of the current year and to provide total business and personal miles driven. From those details we can determine the taxable benefit of the car.

For the 2017 YE process the employee still has the same car. They are questioning why the FMV of the car has not been re-determined for the Nov 1 2016 to Oct 31 2017 year. I provided the employee with the 4-year lease term rule which states the FMV will stay the same for the period that begins with the first date you use this rule for the automobile and end on December 31 of the fourth full calendar year follow that date. The employee then rebuttled with the Special Accounting Rule, saying that because of this rule the car should be re-determined for FMV for the Nov 1 2016 to Oct 31, 2017 year.

Can somebody shed some light on if the employee is correct that the FMV of the car should be re-determined for the 2017 year or do they have to wait until next year for the value to be re-determined.

Thanks

Comments

  • It is been too long since I have done this (thank God), but I would start by looking at IRS pub 15B. The employee is making a reasonable argument, but IRS regulations are not always reasonable. They say whatever they say.

  • It sounds as if you are using the special accounting rule - under that rule, the benefits for the last two months of the calendar year are treated as paid during the next calendar year.

    See Pub 15-B pages 26-27 regarding the 4 year lease term. Under the regular rule, the lease term ends on December. Once you reach the end of the fourth full calendar year following the first date the lease rule was used, determine the FMV of the vehicle on Jan of the first year of the later-year period and select the amount in column of the IRS lease value table that corresponds to the appropriate dollar range in column . For the car placed in service on 6/24/13, the end of the fourth full calendar year would be December 31, 2017 (2013 was not a full calendar year, 2014, 2015, 2016, 2017) and the new 4 year period could start Jan 1, 2018.

    However,s under the special accounting rule and your special accounting period (Nov 1 - Oct 31), the lease value may be updated on Nov. 1 of the 4th full special accounting period following the start of the lease. (see 15-B p 29) Since you started on June, 24, 2013, the end of the fourth full period would be October 31 2017 and a new lease term would start Nov 1, 2017. That is, the new lease term starts on the first day of the special accounting period that starts before Jan 31 of the year the new period would start under the regular lease value method. The employee has it correct except wanted it done a year earlier than allowed. That is, you would use the old lease value until October 31, 2017.

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