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Standard Mileage Deduction in Partnership

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Posted · Report post

I have a partnership (new) that wants to use the standard mileage rate deduction for a partnership owned vehicle that is used 100% for business. I do not see where that deduction can be taken on the partnership return (1065). The tests are all met for using the standard rate if a sole prop. etc.

Is a partnership not allowed to use the standard mileage rate?

If it is... .where is the deduction made?

I thought about calculating the deduction manually and entering it on "Line 20 - other deductions" as "Auto & Truck Expenses".

I Wasn't sure if this would fly or not. Anybody have any experience or reference in this. I can not find anything relating to this in any of my reference books.

(BTW ... the taxpayer is determined to use the standard rate vs actual expenses)

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Posted · Report post

Is your partnership willing to not have any other vehicle expenses paid by the partnership (not likely)? Is your partnership willing to treat any personal use of the vehicle as a taxable fringe benefit added to the 401K-1 as guaranteed payments subject to SE tax (not likely)?

Then, yes it is possible to calculate the mileage rate and deduct as other deductions, although not normally advisable. Partners in a partnership are considered as self-employed persons and mileage expense could be claimed as such. A partnership is nothing more than 2 or more self-employed persons.

You are going to get other comments here that will disagree.

From Quickfinder Handbook, page J-10:
>>Partnerships and Corporations
When a taxpayer uses the standard mileage method for deducting business auto expenses, depreciation is included. The use of the standard mileage method is limited to a self-employed individual or an employee (Rev. Proc. 2006-49). Corporations are not allowed to use the standard mileage rate method. Partners in a partnership are considered self-employed.
Employer-provided vehicles. Partnerships and corporations can treat vehicles used by employees as being used 100% for business purposes if the value of personal use is included in the employees’ gross wages, or the employees reimburse the employer for the personal use. The employer must withhold the appropriate taxes from the employees’ wages. See Tab K for rules on the value to be included in the employees’ wages.
If a partnership provides a partner with a company car, the value of the partner’s personal use is a taxable fringe benefit. The amount is included in the partner’s gross income as a guaranteed payment. [iRC §707( c ]
Persons considered employees for purposes of employer-provided vehicle rules: [Reg. §1.132-1( b )(2)]
• Any individual currently employed by that employer.
• Any partner performing services for the partnership.
• Any director of the employer.
• Any independent contractor performing services for the employ­er.
Reimbursement method. Rather than the business owning a vehicle, a partnership or corporation can reimburse the employee or partner for using his or her personal vehicle in the business.
<<

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Posted · Report post

Thank you Jack,

I agree with your thinking in your first two paragraphs. It is very unusual for a partnership to use the standard mileage rate. Which is probably why I have never run into this before.

In this situation, the vehicle was purchased by the partnership and is strictly 100% used for business. It is not suitable for personal use. Due to the favorable deduction by using the standard rate, the taxpayer is definately inclined to use that.

I had read the reference in "the taxbook" which had similar language as in your message, but still no definate answer.

Any other ideas???

(to make things worse... this client is one of "those" that knows enough about taxes to make it miserable for the preparer)

("he should have just done it himself"... but he'd rather have me do it, as long as he can tell me how) :-<

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Posted · Report post

Ray, I would wait for other opinions that will probably be posted. As you say, it is a gray area and it is always best to hear other opinions before you decide what to do.

The thing that scares me the most with a client like this is they will take the mileage and then not want to exclude other expenses related to the vehicle. As you know if you take mileage you would need to disclose, on the partnership tax return page 5, reconciling items from book income to tax income.

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Posted · Report post

on the partnership tax return page 5, reconciling items from book income to tax income[/i

uh-oh... I hadn't thought of that.

And just how would you do that? what would you list it as? where?

and then also ... why??

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Posted · Report post

on the partnership tax return page 5, reconciling items from book income to tax income[/i

uh-oh... I hadn't thought of that.

And just how would you do that? what would you list it as? where?

and then also ... why??

Under expenses recorded on books not on tax return = actual vehicle expenses. Under deductions included on Schedule K not charged against book income = standard mileage allowance. The Why about is because that is the only way for reconciling items from book income to tax income as OldJack said.

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Posted · Report post

As Bart said, except I would split out and show depreciation allowable on 1065, page 5, Schedule M-1, line 4a just to keep track of it. Then on 4b would go all those other book costs such as vehicle insurance, vehicle repairs, vehicle interest expense, vehicle gas & oil, vehicle license, vehicle inspections, vehicle tires, vehicle washing, and any other vehicle expense.

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Posted · Report post

ping....I just had a brain flash.

This partnership is not required to complete the schedules L - M. etc.

So I wont have to worry about balancing the books etc.

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Posted · Report post

If you are not deducting any of the vehicle expenses on the form 1065, calculate the mileage rate and deduct as an "Unreimbursed Partner Expense" as per instructions on Page E-8, re: line 28 of the 1040 instructions. Show as "UPE" on on Schedule E page 2 line 28(h). Just got it through audit with the IRS.

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Posted · Report post

but he said the partnership owns the vehicle.

Is the title in the partnership name?

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Posted · Report post

Having the vechicle titled up in the partnership name complicates it. I had a similar situation and the partnership reimbursed the partner for expenses. The reimbursement was netted against the mileage deduction on Schedule E as explained above. Went through Audit, was looked at and argued about, but was accepted.

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