Business Standard Mileage Rate Increases For Last Half Of 2011; Other Rates Also Rise

IR 2011-69; Ann. 2011-40, 2011-29 IRB

IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 4.5¢ from 51¢ to 55.5¢ per mile for business travel from July 1, 2011 to Dec. 31, 2011 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. This rate can also be used by employers to reimburse tax-free under an accountable plan employees who supply their own autos for business use, and to value personal use of certain low-cost employer-provided vehicles. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 4.5¢ for the last half of 2011 from 19¢ to 23.5¢ per mile.

Observation: The increase reflects an apparent reversal of thinking at IRS. As late as last month, during a conference call to the payroll industry, an IRS spokesperson said IRS had no current plans to boost the mileage rate.

Background. 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, 2010-51 IRB 883) IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an automobile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn't exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2010-51, Sec. 9.01) The reimbursement is treated as a tax-free accountable-plan reimbursement if the employee substantiates the time, place, business purpose, and mileage of each trip. Additionally, an employee's personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. §1.61-21(e)(1) are met.

A separate rate applies for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2010-51) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that's not adjusted for inflation. (Code Sec. 170(i))

When the new rates are effective. The revised standard mileage rates in Ann. 2011-40 (55.5¢ for business; 23.5¢ for medical or moving expenses) apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2011, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2011, and (2) for transportation expenses paid or incurred by the employee on or after July 1, 2011.

However, the standard mileage rates in Notice 2010-88, 2010-51 IRB 882 (51¢ for business; 19¢ for medical or moving expenses), continue to apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes before July 1, 2011, and to mileage allowances paid: (1) to an employee before July 1, 2011, or (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2011. All other provisions of Notice 2010-88 remain in effect. (Ann. 2011-40)

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