Publication 15-B Employer'S Tax Guide To Fringe Benefits

ployee. This amount must be included in the employee’s

You can choose to ignore test (2) if the employee was not

also in the top 20% of employees when ranked by pay for

wages or reimbursed by the employee.

the preceding year.

You can use the commuting rule if all the following

requirements are met.

Lease Value Rule

•

You provide the vehicle to an employee for use in

your trade or business and, for bona fide noncom-

Under this rule, you determine the value of an automobile

pensatory business reasons, you require the em-

that you provide to an employee by using its annual lease

value. For an automobile provided only part of the year,

ployee to commute in the vehicle. You will be treated

use either its prorated annual lease value or its daily lease

as if you had met this requirement if the vehicle is

value.

generally used each workday to carry at least three

If the automobile is used by the employee in your busi-

employees to and from work in an employer-spon-

ness, you generally reduce the lease value by the amount

sored commuting pool.

that is excluded from the employee’s wages as a working

•

You establish a written policy under which you do

condition benefit. However, you can choose to include the

not allow the employee to use the vehicle for per-

entire lease value in the employee’s wages. See Vehicle

sonal purposes, other than for commuting or de

allocation rules on page 16.

minimis personal use (such as a stop for a personal

errand on the way between a business delivery and

Automobile. For this rule, an automobile is any

4-wheeled vehicle (such as a car, pickup truck, or van)

the employee’s home). Personal use of a vehicle is

manufactured primarily for use on public streets, roads,

all use that is not for your trade or business.

and highways.

•

The employee does not use the vehicle for personal

purposes, other than commuting and de minimis per-

Consistency requirements. If you use the lease value

sonal use.

rule, the following requirements apply:

•

If this vehicle is an automobile (any 4-wheeled vehi-

1) You must begin using this rule on the first day that

cle, such as a car, pickup truck, or van), the em-

you make the automobile available to any employee

ployee who uses it for commuting is not a control

for personal use. However, the following exceptions

employee (see below).

apply:

a) If you use the commuting rule (discussed earlier)

Vehicle. For this rule, a vehicle is any motorized wheeled

when you first make the automobile available to

vehicle, including an automobile, manufactured primarily

any employee for personal use, you can change

for use on public streets, roads, and highways.

to the lease value rule on the first day for which

you do not use the commuting rule.

Control employee. A control employee for 2003 is gener-

b) If you use the cents-per-mile rule (discussed ear-

ally any of the following employees.

lier) when you first make the automobile available

•

to any employee for personal use, you can

A board or shareholder-appointed, confirmed, or

change to the lease value rule on the first day on

elected officer whose pay is $80,000 or more.

which the automobile no longer qualifies for the

•

A director.

cents-per-mile rule.

•

An employee whose pay is $160,000 or more.

2) You must use this rule for all later years in which you

•

An employee who owns a 1% or more equity, capi-

make the automobile available to any employee, ex-

tal, or profits interest in your business.

cept that you can use the commuting rule for any

•

year during which use of the automobile qualifies.

A government employee whose compensation is

equal to or exceeds Federal Government Executive

3) You must continue to use this rule if you provide a

Level V. (See the Office of Personnel Management

replacement automobile to the employee and your

web site at

primary reason for the replacement is to reduce Fed-

for 2003 compensation information.)

eral taxes.

•

An elected official.

Annual Lease Value

Highly compensated employee alternative. Instead

of using the preceding definition, you can choose to define

Generally, you figure the annual lease value of an automo-

a control employee as any highly compensated employee.

bile as follows.

A highly compensated employee for 2003 is an employee

who meets either of the following tests.

1) Determine the fair market value (FMV) of the auto-

mobile on the first date it is available to any em-

1) The employee was a 5% owner at any time during

ployee for personal use.

the year or the preceding year.

2) Using the following Annual Lease Value Table,

2) The employee received more than $90,000 in pay for

read down column (1) until you come to the dollar

the preceding year.

range within which the FMV of the automobile falls.

Page 19

Publication 15-B Employer'S Tax Guide To Fringe Benefits - 2003 Page 19

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