S Corp Vehicle messes. Help please?!

[sandigi]

Can you please help me with clarification on these S corp vehicles messes our clients bring us?

First of all, is there any truth to this? I had an Enrolled Agent tell me that a CPA told her if the vehicle is in the shareholder name, the corp can pay the expenses and depreciate the vehicle as long as the Insurance policy is in The S-Corporation's name.

Client is a Painting S-corp, used to be just 1 SH. Last year, he gifted 50% of his stock to his son and he is gung-ho at building the business. Now, they hired more employees and purchased 3 cheap vans and pickups in 2017 for the painting crews. By cheap, I mean $2000, $3000, and $2500 and Corp paid cash for the vehicles. These vehicles are in dad's name. Dad says vehicle insurance is in Painting Corp name. Corp paid insurance, gas, and repairs, on the vehicles. How do I treat the assets and expenses?

Son bought a brand new truck. Title is in his name, insurance in his name, and loan in his name. Corp paid the gas, and the truck payment. I told dad that truck payment would be considered a 50/50 distribution and not a corp expense. Am I thinking right on this? There is no way to back out the gas as he just gave me total gas exp paid and not per vehicle. Son paid the insurance.

I've read many of the prior posts on here and still am confused so I would appreciate any help I can get!!

[TaxGuyBill]

I'm not aware of any rules of 'implied' ownership that would allow direct depreciation.

However, I don't see a problem with the corporation paying for (and deducting) business gas, repairs, etc. as long as the business use is documented.

I also think the corporate could have an Accountable Plan that could reimburse the employees for depreciation and vehicle interest.

[Rapid Robert]

I'm not aware of any rules of 'implied' ownership that would allow direct depreciation.

I don't think this is an area that is settled, either by law or court ruling. The same concept of "equitable ownership" that sometimes allows a person to deduct mortgage interest and prop tax on a residence they don't own, can also possibly apply to a corporation's equitable ownership of a vehicle.

If the vehicle is 100% business use, I don't see any point to NOT having the corporation directly own the vehicle, and deduct all actual expenses including depreciation. The scenario where it might make sense to use equitable ownership is when there is also personal use of the vehicle, which triggers a taxable non-cash fringe benefit for the S-corp employee (officer, shareholder). But it is much more simple in that case to reimburse employee under an accountable plan. Not necessarily better tax-wise, but definitely more simple.

People forget sometimes that a corporation is not all about taxes. There may well be much more important legal reasons why the corporation should own the vehicles directly on the title. Consult your attorney.

[Rapid Robert]

I also think the corporate could have an Accountable Plan that could reimburse the employees for depreciation and vehicle interest.

I've never heard of an accountable plan that didn't use published IRS business mileage rates, not sure if it's required but would guess so. The standard mileage rate includes depreciation, maintenance, interest, and so on. (but the exact formula is not published, the IRS outsources the determination of the annual mileage rate to some consulting firm each year, I think).

[TaxGuyBill]

The same concept of "equitable ownership" that sometimes allows a person to deduct mortgage interest and prop tax on a residence they don't own, can also possibly apply to a corporation's equitable ownership of a vehicle.

The problem is that the mortgage deduction is not a "concept", it is specifically stated in a Regulation (§1.163-1) that only applies to mortgage interest.

While there might be rulings that allow the 'equitable' concept for other situations, I am not aware of such, and most things require actual ownership.


I suspect that people hesitate to put vehicles in a corporation because sometimes lenders won't lend to a corporation, and some insurance companies charge more for an official 'business' such as a corporation.

[sandigi]

vehicle titles & corp expense

Thank you for your responses. I appreciate this forum and the time and consideration you people take to help others out!

Dad said he put the 3 cheap vans/pickups in his name because in Florida we have a "new wheels on the road fee" of $225 and when he went to register the vehicles, they said "you have a plate to transfer" (in his name, not the corporation's name). Vehicles are parked at the business site and loaded with business equipment. The benefits and burdens belong to the corporation not the shareholder. Corporation is taking the position of "beneficial ownership" or "equitable ownership" because these are not personal vehicles.

The son's new truck is his only vehicle. I'm not sure if the gas for this truck is included in the Corp gas expense, but probably is. Dad said it is 100% business, but I said not so if that is his only vehicle. Also, how would we go back and include personal use in his W2? I told Dad the payments from the Corp for the truck are being treated as distributions 50% each. I'm recommending they do a reimbursement for the business mileage from this day forward.

Thanks again!