C-corp owned car

[Margaret CPA in OH]

I have a new C-corp which owns a car used by owner/shareholder for business and personal use. This person not the company pays for the gas. I can calculate the inclusion amount for personal use but what about reimbursing the person for the gas paid for business mileage? The per mile rate includes depreciation which the company takes. Do I just subtract that from the standard rate? If so, what is it for 2008? I see that for 2007 it was 19 cents. If not, what is the correct way to handle this as the client wants to be repaid for the gas used for business miles.

Thanks for the help!

[Gail in Virginia]

If the client kept good records, then if you divide business miles by total miles, and multiply that by the total amount spent for gas for the vehicle, you should get a pretty good idea of how much was spent on gas for business. But how is the personal use being treated by the corporation? Are those miles being added to his income on his W2?

[Margaret CPA in OH]

Thanks for the reply. Good records? I only wish! They have no idea about the total spent for gas for this car as they have a personal car as well. Yes, the personal use is included on the W-2. They just want reimbursement for the business miles on the company car since they paid for the gas. I just don't have a good way to determine that but am pretty sure it shouldn't be at the standard rate which includes the depreciation. Any other suggestions are most welcome!

[jainen]

>>pretty sure it shouldn't be at the standard rate which includes the depreciation<<

They can't deduct the standard rate because they don't own the car. Their only choice is actual costs, which they can't support without records. I would suggest they let 2008 go and start a mileage log with gas receipts for 2009.

I would guess it's of little value to them anyway. Employees who get a company car are usually well-paid with the company covering most work expenses, thus increasing the 2% AGI limitation. You may also find that a lot of the work-related mileage is not much different from commuting.

[OldJack]

Their only choice is actual costs, which they can't support without records.

Well... I don't see any problem calculating a deduction since the number of business miles must have been determined in order to add gross income to the W2. It should not be difficult to also determine the average gallons of gas that was used to drive the number of business miles (since the auto maker has published a MPG rate for that auto) and what the average price per gallon of gas has been in that particular area. Thus it is simply a math calculation to determine a deduction. True that the Cohan rule (estimated amount) doesn't apply to travel or entertainment expenses, listed property, or business gift, but I would probably claim the deduction as reasonable, ordinary, and necessary business expense. I doubt the deduction makes much savings in tax and I agree that actual cost or reimbursement should be used in future years.

I don't know if it makes a difference but Reg 1.162-17(d)(3) refers to incidental travel expenses allow a reasonable approximation for deduction. I don't know if one could claim mileage or fuel is an "incidental travel expense".

[Margaret CPA in OH]

Thanks to all for your suggestions. This is a 2 owner C-corp with a home office so commuting is not a factor. They are not highly paid by any means which is one reason they want the company to reimburse for the gas for the business miles, about 1300. I have suggested OldJack's calculation to get close to a fair amount this year and to have the company pay for everything going forward. We'll see what happens. Thanks again!

[jainen]

>>they want the company to reimburse<<

Well, okay I suppose, but technically it is wrong. For one thing, an employee can't decide to have an accountable plan; it would have to be authorized by the corporate board in the regular way. And even with an accountable plan, documentation must be submitted within 60 days. So unless your client decides to ignore the rules, it is a non-accountable plan. Reimbursement must be added to taxable wages and documented expenses claimed on Form 2106 subject to 2% limitation.

Now let's see what we are talking about. 1300 miles divided by 20 something? miles per gallon times $3 something? per gallon -- Are we talking about 195 dollars? Tell her to take a $250 Christmas bonus and call it even.

[Margaret CPA in OH]

Jainen, great idea! I think we will be discussing all this for 2009 early in the year. And thanks again for input from all!