Deducting Auto Mileage for W2 Employee Who Has Received Employer Reimburesements

[Steve Stang]

I have a client who works for a firm that services a regional grocery store chain with more than 70 stores throughout the Northeast. Client's tax home is Massachusetts. Client has to drive his personal vehicle to one or more of these stores each day from his home. He has no specific office he works from.

Employer reimburses Client based on a three-tiered cent per mile program. Client submits mileage to employer monthly. Employer does not reimburse for the first twenty miles per day and the last 20 miles per day - deemed 'commuting miles.' Reimbursements don't show up on W2.

In 2013 the Client was reimbursed for 7100+ miles and not for 6500+ 'commuting' miles.

In reading TTB 10-4 about business use of a vehicle, I note that travel visiting customer sites is deductible. And even though he may travel to the same stores over and over, I probably can't consider them 'temporary work locations.' In TTB 10-4 in mentions 'commuting' that is never deductible. But since the Client is not commuting in the sense of going to the employer's fixed location but visiting customer sites, I think it is deductible (at least the amount not reimbursed). I would say that the employer's use of the term 'commuting' is only for its records.

So, long way to ask, is it reasonable to deduct the non-reimbursed portion of his mileage on 2016? He's got other itemized deductions as well (mortgage, taxes, medical).

[Koss]

Mileage

I agree that the first 20 miles per day and the last 20 miles per day are not necessarily commuting miles. That's what the employer is calling them. But in reality, his commuting miles could be more or less than that amount on any given day.

My view is that each day, the drive from his home to the first store is commuting, and is not deductible. Same goes for the drive from the last store back to his house. In general, all of the miles in between would be deductible business miles, after accounting for the reimbursement.

Is there something about this scenario that I'm not getting? Does he drive 250 miles or something just to get to the first store??

BMK

[Jiggers]

Client was audited 2 years ago on 2106 very high mileage. Similar situation with your client. He left his home every day and traveled to various locations in several counties to service the customers. It was more efficient to leave from his home than coming to the office and then back-tracking to the customers locations.

The company provided a letter that said he was required to do this.

The company required a weekly report showing his total miles each day. He submitted his fuel tickets and was reimbursed from them.

I prepared the 2106 using the irs mileage rate and deducted the fuel reimbursement.

The letter from the company was required. He also had to prove the odometer readings that he used on his weekly reports. He serviced his vehicle at the local Ford dealer every 3,000 miles and they provided a report showing the odometer readings at each oil service. Matched pretty close to the reports.

I also had to show the large territory that was covered. I copied the state map and colored in the counties that he was required to travel to. I also pointed out the mileage marks on the map so that the auditor in some other state could see that the distance was great.

No change on the audit.

I am saying that the mileage from the home may not be comuting. Will the company issue a letter saying that he is required to start from his home?

[ddoshan]

I tend to agree with Koss ... Would seem that mileage to his first stop and trip home from last stop would be commuting and not deductible. Mileage from first stop to any other stop would be. What the store is doing is irrelevant in my opinion. They are just helping out some with his expenses.
A lot of people drive 100 plus miles or more every day RT to get back and forth to work. They can't deduct mileage.

Reasoning being that apparently he does not have a regular work location so temporary jobs would seem to be out.
He apparently does not have a qualified office in his home which would probably make all his mileage deductible.
By the way, is the store including this reimbursement in his wages. Seems they should be.
I really don't see how the 1st and last 20 miles each day enters into the equation.

[Burke]

.
By the way, is the store including this reimbursement in his wages. Seems they should be.

I don't think so. He is submitting mileage under an accountable plan. If he wishes to deduct his mileage, he computes the entire amount (less commuting) at the IRS rate, then reduces it by the reimbursement from the company.

[ddoshan]

I don't think so. He is submitting mileage under an accountable plan. If he wishes to deduct his mileage, he computes the entire amount (less commuting) at the IRS rate, then reduces it by the reimbursement from the company.

Point taken but ... Is it an allowable employee business expense in the first place that he is being reimbursed for. Why only after the first 20 miles. Not sure what that would mean. Do they consider the 1st and last 20 miles commuting and then any mileage after that to be a legitimate employee expense. How do they come up with the 20 mile thing. Not sure what criteria or rules that would be based on.

[Burke]

Businesses can do anything they want. They can pay any rate they want. It doesn't matter if they routinely only pay over 20 miles. That's just what they decided to do. The taxpayer has to include any excess reimbursement over the IRS rate in income. He also has to deduct any reimbursement if he takes mileage on his tax return, unless they included the entire amount in Box 1 of his W-2. Usually that is done when it is a flat car allowance per month, for instance.

[Steve Stang]

Point taken but ... Is it an allowable employee business expense in the first place that he is being reimbursed for. Why only after the first 20 miles. Not sure what that would mean. Do they consider the 1st and last 20 miles commuting and then any mileage after that to be a legitimate employee expense. How do they come up with the 20 mile thing. Not sure what criteria or rules that would be based on.

Thanks all.

I've read the employer's manual related to this provided by the employee. The employer has several reimbursement programs. This one does not get added back to W2. The employer is calculating a way to cover the fixed and variable costs associated with driving a Ford Focus used for work regardless of the actual vehicle used by the employee. The plan states that the first 20 miles are considered commuting regardless of how many stops are made along the way.

From the manual:

Mileage Reimbursement Program (how the plan works)
Mileage reimbursement rates are based on the cost of acquiring and operating a “standard” personal vehicle for business purposes. It is based on the annual fixed and variable costs you would incur to own and operate a brand new Ford Focus for business use. This is regardless of what vehicle you actually choose to drive.

Reimbursable Costs used in Calculation of the Reimbursement Rate
Reimbursements under the program are for reimbursable business costs. Fixed costs used in the calculation of the reimbursement rate for the standard vehicle are as follows:
1. Vehicle depreciation
2. Business use auto insurance
3. Taxes
4. License and registration fees

Variable costs used in the calculation of the reimbursement rate are for business costs of the standard car under the program as follow:

4. Gasoline
5. Tires
6. Maintenance


Mileage has to be logged and reported through a corporate system. And the policy clearly indicates that his employee class has no fixed location/office so he has to 'eat' the first and last 20 miles of each day.

[Steve Stang]

I agree that the first 20 miles per day and the last 20 miles per day are not necessarily commuting miles. That's what the employer is calling them. But in reality, his commuting miles could be more or less than that amount on any given day.

My view is that each day, the drive from his home to the first store is commuting, and is not deductible. Same goes for the drive from the last store back to his house. In general, all of the miles in between would be deductible business miles, after accounting for the reimbursement.

Is there something about this scenario that I'm not getting? Does he drive 250 miles or something just to get to the first store??

BMK

Because of the territory covered (72 stores, 6 states) he may drive 100 miles or more to one store and work his way back to other stores. I realize that in the strict sense of 'commuting' per IRS and in the TTB that such commuting is not deductible regardless of the distance, that folks who travel long ways to get to work don't get any advantage of deduction. On the other hand, the TTB does say that mileage to a client/customer is deductible from the office or home. In this case, he has no fixed office so I think it right to use the distance from the home.

I'm inclined to use the total reported miles on his log multiply that by the IRS mileage rate and then reduce the amount by the total company reimbursement. Then put that on the 2106 and run it through the Schedule A 2% threshold.

[jsamans]

Because of the territory covered (72 stores, 6 states) he may drive 100 miles or more to one store and work his way back to other stores. I realize that in the strict sense of 'commuting' per IRS and in the TTB that such commuting is not deductible regardless of the distance, that folks who travel long ways to get to work don't get any advantage of deduction. On the other hand, the TTB does say that mileage to a client/customer is deductible from the office or home. In this case, he has no fixed office so I think it right to use the distance from the home.

I'm inclined to use the total reported miles on his log multiply that by the IRS mileage rate and then reduce the amount by the total company reimbursement. Then put that on the 2106 and run it through the Schedule A 2% threshold.

Okay, here's the thing. TTB 10-5 says that:

Use of a vehicle qualifies as business use under all the following.
• Getting from one workplace to another in the course of a taxpayer’s business or profession when the taxpayer is traveling within the city or general area that is the taxpayer’s tax home.
• Visiting clients or customers.
• Going to a business meeting away from the taxpayer’s regular workplace.
• Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. These temporary workplaces can be either within the area of the taxpayer’s tax home or outside that area.

Notice, however, in the example of that same TTB page, that "the cost of commuting to each temporary job site within the metropolitan area is nondeductible personal expense because Shae does not have a regular place of work."

The fact that the company treats twenty miles each day as commuting establishes pretty clearly that it does NOT consider your client's home to be his primary office (or else there would be NO commuting miles), and the use of a flat twenty miles regardless of origin establishes equally clearly that his primary office is not any particular place. The employer may reimburse anything under an accountable plan -- that's fine -- but any attempt to deduct the non-reimbursed portion of the mileage is likely to be rejected because your client has to regular place of work.

My two cents.

[Steve Stang]

Temp Work Locations

Okay, here's the thing. TTB 10-5 says that:

Use of a vehicle qualifies as business use under all the following.
• Getting from one workplace to another in the course of a taxpayer’s business or profession when the taxpayer is traveling within the city or general area that is the taxpayer’s tax home.
• Visiting clients or customers.
• Going to a business meeting away from the taxpayer’s regular workplace.
• Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. These temporary workplaces can be either within the area of the taxpayer’s tax home or outside that area.

Notice, however, in the example of that same TTB page, that "the cost of commuting to each temporary job site within the metropolitan area is nondeductible personal expense because Shae does not have a regular place of work."

The fact that the company treats twenty miles each day as commuting establishes pretty clearly that it does NOT consider your client's home to be his primary office (or else there would be NO commuting miles), and the use of a flat twenty miles regardless of origin establishes equally clearly that his primary office is not any particular place. The employer may reimburse anything under an accountable plan -- that's fine -- but any attempt to deduct the non-reimbursed portion of the mileage is likely to be rejected because your client has to regular place of work.

My two cents.

I see that in the TTB but it also says at 10-5:

Temporary work location. Defined as a work location that is
realistically expected to last, and does in fact last, for one year
or less. Commuting from home to a temporary work location is
deductible only if the taxpayer has one or more regular work locations ...

The company has a contract with the grocery store chain (a separate entity) so it would seem that it is likely to last for more than one year. So in this case, my interpretation is that the commuting from home is deductible as any one of these stores could be regular work locations under the contract.

[ddoshan]

It seems to me that the only thing he can hang his hat on is .... If you have no regular regular place of work you can only deduct your transportation expenses to temporary work locations outside the taxpayers metropolitan area. No one, as far as I know, has ever definitively defined just what that is. But 20 miles would not seem to be a reasonable distance. The IRS is all over the place on this. Personally for the sake of my sanity, I consider that a client is working temporary jobs
outside his so called met. when working temp. jobs more than 40 miles out. But I think that is even to low.

[Nashville]

One Central Location

I would define his reporting office as his "tax home", even though he doesn't go there often, and would make a point of treating all trips to this office and back as non-deductible "commuting" miles. Reason being, failure to do so could result in the IRS declaring NO HOME and therefore ZERO deductible mileage.

The company can define whatever they wish as "commuting" miles so long as the taxpayer observes the IRS commuter concept on his 2106. The company just is trying to make a policy of what they wish to reimburse, and they can do whatever they want. So the first 20 miles may or may not be "commuter" miles on the 2106, and the EXCESS of 20 miles may or may not be "commuter" miles on the 2106.

The big problem in this whole thing, which hasn't yet been discussed, is the 2% threshold carving huge amounts out of his deduction for this. I don't see any way to avoid the 2% so long as this guy is an employee.

[ddoshan]

The big problem in this whole thing,

To me the big problem with this whole thing is just what mileage may be deductible. I am still of the opinion that his reimbursements from the Co. most probably should be reported as wages, as the reimbursements may very well not be for allowable deductible employee business expenses.

I am baffled by this 20 mile thing. And as to why or why not he should get any deduction for his mileage.

[Steve Stang]

2% Threshold

I would define his reporting office as his "tax home", even though he doesn't go there often, and would make a point of treating all trips to this office and back as non-deductible "commuting" miles. Reason being, failure to do so could result in the IRS declaring NO HOME and therefore ZERO deductible mileage.

The company can define whatever they wish as "commuting" miles so long as the taxpayer observes the IRS commuter concept on his 2106. The company just is trying to make a policy of what they wish to reimburse, and they can do whatever they want. So the first 20 miles may or may not be "commuter" miles on the 2106, and the EXCESS of 20 miles may or may not be "commuter" miles on the 2106.

The big problem in this whole thing, which hasn't yet been discussed, is the 2% threshold carving huge amounts out of his deduction for this. I don't see any way to avoid the 2% so long as this guy is an employee.

Even though the Sch A threshold lops off a portion of his mileage expense it still would be worth it as it increases his overall itemized deductions which helps him reduce his taxable income - which was inflated by early distributions from IRAs.