Annual Lease Value

[natiro]

My client (C-Corp) bought a Prius for an employee. Let's say the purchase price was 28,000 and the hybrid tax credit is 5,000 (I don't want to look up the actual amounts.) Would I use 28,000 or 23,000 (price less credit) for the Annual Lease Value table? The regs say that for safe harbor we would use the price paid but I'm wondering if the tax credit comes into play at all.

Rather than pick up the personal use amount as compensation, the employee would like to reimburse the company for personal use.

Due to the cost of the auto, the company would have to use the Annual Lease Value table to calculate the fringe benefit. (That is, the cents per mile option is not available.)

The employee would like to reimburse the company based on cents per mile and not by using the Annual Lease Value calculation. Can the employee use this method for reimbursement if this option isn't available to the company in calculating the fringe benefit?

Thank you for any insight.

[veritas]

I would use the 28k figure for annual lease value. Why don't they just include the fringe on their W2? So they pay some tax so what? It's less than it would cost to reimburse the company.

What percentage is personal use?

[Jan]

Looks like you have a choice to use either the FMV or Safe Harbor value


The annual lease value of an automobile is computed by first determining the fair market value of the automobile on the first date it was made available to any employee for personal use. (IRS Treasury Regulation 1.61-21(d)(2)). Under a safe harbor provision, the employer's cost can be substituted for FMV, provided certain conditions are met. (IRS Treasury Regulation 1.61-21(d)(5)(ii)(A))

The safe harbor value of an automobile owned by the employer is the employer's cost of buying it (including sales tax, title and other expenses attributable to the purchase), provided that the purchase is made at arm's length.
The safe harbor value of an automobile leased by the employer is either:
1. the manufacturer's suggested retail price less 8% (IRS Treasury Regulation 1.61-21(d)(5)(ii)(C));
2. the retail value of the automobile as reported in a nationally recognized publication that regularly reports new or used automobile retail values (IRS Treasury Regulation 1.61-21(d)(5)(ii)(C)); or
3. the manufacturer's invoice (including options) price plus 4% (Notice 89-110, 1989-2 CB 447).
Option three can only be used for vehicles provided after December 31, 1988. Note, if one of these safe harbor methods is improperly used, the regulations say the fair market value of the vehicle fringe benefit must be computed under the general valuation rule. (IRS Treasury Regulation 1.61-21(c)(5))