IRS Has No Current Plans To Increase Standard Mileage Rates

During its May 12 payroll industry conference call, an IRS spokesperson said that IRS has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices.

Simplified deduction method. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 51¢ per mile for business travel after 2010. (The 2011 rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction is 19¢ per mile, 2.5¢ more per mile than the 16.5¢ for 2010.) (Rev Proc 2010-51, 2010-51 IRB 883)

The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance, and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2010-51)

The standard mileage rate may not be used for a purchased auto if: it was previously depreciated using a method other than straight-line for its estimated useful life; a Code Sec. 179 expensing deduction was claimed for the auto; the taxpayer has claimed the additional first-year depreciation allowance; or the taxpayer depreciated it using MACRS under Code Sec. 168. Also, under current rules, the standard mileage rate can't be used to compute the deductible expenses of five or more autos owned or leased by a taxpayer and used simultaneously (such as in fleet operations). Rural mail carriers who receive qualified reimbursements also can't use the standard mileage rate. (Rev Proc 2010-51)

A taxpayer who uses the mileage allowance method for an auto he owns may switch in a later year to deducting the business connected portion of actual expenses, so long as he depreciates it from that point on using straight-line depreciation over the auto's remaining life. The depreciation deductions would still be subject to the Code Sec. 280F dollar caps. (Rev Proc 2010-51)

Additionally, employers may reimburse employees who are required to provide their own cars for business use at a rate that doesn't exceed the standard mileage rate. A mileage rate that doesn't exceed the standard mileage rate is treated as made under an accountable plan if the mileage is properly substantiated (time, place, mileage, and business purpose).

Observation: IRS generally announces the new mileage rate for the upcoming calendar year at the end of the current year (e.g., in late December or early January). However, in the past, IRS has occasionally made mid-year adjustments in the mileage rates. In June of 2008, IRS announced that the optional mileage allowance for autos would increase from 50.5¢ to 58.5¢ per mile for business travel in the last six months of the year (from July 1, 2008 to Dec. 31, 2008) to better reflect the real cost of operating an auto in a period of skyrocketing gas prices. And, back in September of 2005, IRS increased the then-applicable 40.5¢ per mile optional standard mileage rates for the last four months of 2005 (from Sept. 1, 2005 to Dec. 31, 2005) by 8¢ to 48.5¢ due to unusually high gasoline prices.

No current plans for change. During the May 12 payroll industry conference, Ligeia Donis, Assistant Branch Chief, IRS Office of Chief Counsel, said IRS has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven during 2011, despite the current high gasoline prices. She gave two reasons for this. First of all, there is always the possibility that gas prices could decline. Second, IRS had received some feedback from employers that the change was difficult to implement when it adjusted the standard mileage rate in the middle of 2008.

Observation: Although IRS presently has no plans to adjust the mileage rate, that doesn't necessarily mean it won't decide to make such an adjustment later this year.

References: For the optional mileage allowance, see FTC 2d/FIN ¶L-1903; United States Tax Reporter ¶1624.157; TaxDesk ¶293,005; TG ¶17680.