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socrateaser
socrateaser, Lawyer
Category: California Employment Law
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Experience:  Retired (mostly)
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To Socrateaser......We spoke about a contract for a small water

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To Socrateaser......We spoke about a contract for a small water district.....yes...it's me again. The next irs question regarding stipulations in the employement contract. The contract under 'benefits' states regarding the use of the company vehicle......

The District shall provide the General Manager with a vehicle to perform his duties, and shall provide all fuel, insurance, maintenance, etc. necessary for the operation of that vehicle. The General Manager shall keep the District truck at his home during non-work hours, in order to respond to District business as needed, during both business and non-business hours.

How should this be reported to the IRS since this is listed under benefits? Doesn't his regular commute back and forth to work everyday constitute personal use?

The district hasn't ever kept mileage logs and it looks like they just wrote off the whole amount (in audits.)
Submitted: 2 years ago.
Category: California Employment Law
Expert:  socrateaser replied 2 years ago.
The District shall provide the General Manager with a vehicle to perform his duties, and shall provide all fuel, insurance, maintenance, etc. necessary for the operation of that vehicle. The General Manager shall keep the District truck at his home during non-work hours, in order to respond to District business as needed, during both business and non-business hours.

How should this be reported to the IRS since this is listed under benefits?

A: The business use of the vehicle is a working condition benefit that is paid for by the employer and allocated as an expense, and the employee's personal use is allocable as additional gross income to the employee. The employee must keep a log of all business use. Any other use is personal. The contract language that you have provided does not contemplate the use of the vehicle for any personal use. The first trip of the day is personal use, as is the last trip home (commuter mileage is not deductible). The fact that the district must provide all fuel, maintenance, etc., does not permit the district to ignore the commuter mileage, or any nonbusiness use, as personal expense, subject to additional income allocation reported on the employee's W-2. Failure of the employee to provide a mileage log is grounds for termination of employent, because it puts the district at risk of an unfavorable IRS audit.

To determine use as a business expense, see Pub. 535, Chapter 1, "Business use of your vehicle."

Doesn't his regular commute back and forth to work everyday constitute personal use?


A: Yes.

Note: You may be able to acquire a computer to install in the vehicle that will automatically log travel. That would relieve the employee of the chore, and/or permit you to audit the employee's log (which, could give you grounds for discipline or termination, if the vehicle is used for personal use other than work commutes).

Hope this helps.

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Customer: replied 2 years ago.

To Socrateaser....so this is how it should have been reported all along? Not just now that he has a 'contract?'

 

Shouldn't he have been doing this properly all along as 'general manager?' I have the minutes of the meeting where he was given the use of the truck as part of a salary increase...back in 2005.

 

Will the district pay fines or will he? Or both?

Expert:  socrateaser replied 2 years ago.
I think you many be looking for trouble where none may ever exist.

I'm discussing the Internal Revenue Code as if I were getting ready to represent the IRS or a taxpayer before the U.S. Tax Court. Before, that there must be an audit and a failure to reach a settlement on several different levels.

If the district is never audited, then there will never be an issue. I presume that you have a CPA, or some reputable tax professional who prepares your annual tax returns. That person is responsible for ensuring that things are done appropriately, or at least asking the right questions to ensure that the taxpayer/district is aware of its legal obligations.

You won't be the first or the last employer to overlook de minimis personal miles, or to argue that the amount of commuter mileage was so small as to not be worth logging. But, I don't actually know how much the employee is actually using the vehicle for personal matters, either. The botXXXXX XXXXXne here is that you need to discuss the issue with your tax preparer, because that's the person who is responsible for the returns.

Assuming, however that the district were audited, and it was discovered that the manager had used an ordinary pickup truck as a company car and that he/she never logged any of the vehicle use, then, yes, the IRS could assess penalties to the district, for failing to properly report income and maintain records for the business use of the vehicle. The tax would be based on the entire fair market value of the vehicle use during each tax year audited.

For a good discussion of the issue, see this link.

Hope this helps

NOTICE: My goal here is to educate others about the law. I am always available to answer your follow-up questions after you click Accept – however, if you do not click Accept, the website gets paid, and I receive nothing. This is true, even if you are on a subscription plan. So please click Accept, so that I will be able to continue to provide this service for others in the future.


And, if you need to contact me again, please put my user id on the title line of your question (“To Socrateaser”), and the system will send me an alert. Thanks!

socrateaser, Lawyer
Satisfied Customers: 34141
Experience: Retired (mostly)
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