Rev. Proc. 82-61

SECTION 1. PURPOSE

The purpose of this revenue procedure is to revise Rev. Proc. 80-7, 1980-1 C.B. 590, as modified by Rev. Proc. 80-32, 1980-2 C.B. 767, and Rev. Proc. 81-54, 1981-2 C.B. 649, concerning standard mileage rates under the simplified, optional method described below for employees or self-employed individuals for use in computing deductible costs of operating passenger automobiles owned by them (including vans, pickups, or panel trucks) for business purposes, or for taxpayers to use in computing deductions for transportation expenses relating to charitable contributions, medical expenses or moving expenses.

This revenue procedure makes the following changes in Rev. Proc. 80-7 as modified:

1. Sec. 3.0j(2)(b) states that under the optional method, an automobile placed in service for business purposes after 1979 is considered to be depreciated at the rate of 7 cents per mile for 1980 and 1981, and 7.5 cents per mile for 1982.

2. Sec. 3.01(2)(b) also states that, for purposes of the 60,000- mile useful life rule for cars placed in service after 1979, an automobile is considered to have been driven no more than 15,000 miles in any one year, even if the actual mileage is higher.

3. Sec. 3.01(2)(f), the rule that the mileage of two cars used alternately .combined in computing the annual deduction is modified to state that the two vehicles' mileage will not be combined if one is, or is considered to be, fully depreciated.

SEC. 2. BACKGROUND

Rev. Proc. 80-7, as modified by Rev. Proc. 80-32, provides standard mileage rates for employees and self-employed individuals who claim deductions for the costs of operating automobiles for business purposes and a standard mileage rate for computing deductible costs for rendering gratuitous services to a charitable organization, for transportation for medical care, and for deductible moving expenses. Rev. Proc. 81-54 modified Rev. Proc. 80-7 to state that an automobile used by a taxpayer who uses the optional method of computing the costs of business use of an automobile is considered to have a useful fife of 60,000 miles of business use at the maximum standard mileage rate determined without reference to the age of the vehicle. Rev. Proc. 81-54 also states that a taxpayer who uses the standard mileage rate for the first tax year that an automobile is placed in service after December 30, 1980, will be considered to have made an election under section 168(e)(2) of the Internal Revenue Code to exclude the automobile from the Accelerated Cost Recovery System (ACRS).

Section 162(a) of the Code allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Under that provision, an employee or self-employed individual may deduct the cost of operating a passenger automobile to the extent that it is used in a trade or business. However, under section 262, no portion of the operating cost that is attributable to personal use, rather than use for a business purpose, is deductible.

Section 1. 162-17 of the Income Tax Regulations provides rules for the reporting of information on income tax returns relating to business expenses in connection with the performance of services as an employee and furnishes guidance as to the type of records that will be useful in compiling such information and in its substantiation, if required.

In order to relieve taxpayers from the necessity of maintaining detailed transportation expense records, employees or self-employed individuals may choose to compute the deductible costs of operating passenger automobiles for business purposes by a simplified, optional method that the Internal Revenue Service will accept in examining income tax returns filed by such employees or self-employed individuals.

SEC. 3. OPTIONAL METHOD OF COMPUTING TRANSPORTATION EXPENSES By AUTOMOBILE

.01 Business Expenses

1. Standard Mileage Rates. (a) Subject to the conditions and limitations set forth in section 3.01(2) below, with respect to transportation expenses paid or incurred after December 31, 1979, deductions will be accepted if computed at a standard mileage rate of (a) 20 cents per mile for the first 15,000 miles of use each year for business purposes, and (b) 11 cents per mile for use for business purposes in excess of 15,000 miles per year.

(b) In the case of automobiles that are first placed in service for business purposes after December 31, 1980, a taxpayer wishing to use the optional method must elect to use this method only in the first year that the automobile is placed in service for business purposes. By electing to use the optional method, the taxpayer has made an election to exclude the automobile from the Accelerated Cost Recovery System (ACRS) pursuant to section 168(e)(2) of the Code. A taxpayer who has elected the optional method in the first year as provided above may elect to use or not to use the optional method in later years of use of the automobile, on a yearly basis. If the taxpayer elects to use the actual expense method rather than the optional method in a later year, the taxpayer must deduct straight-line depreciation over the automobile's estimated useful life and may not take the deductions provided by ACRS.

In the case of automobiles placed in service before January 1, 1981, a taxpayer may elect to use either the optional method or the actual expense method on a yearly basis.

(c) A deduction computed under this method shall be in lieu of an operating and fixed costs of the automobile allocable to business purposes. Such items as depreciation, maintenance and repairs, tires, gasoline (including all taxes thereon), oil, insurance, and registration fees are included in operating and fixed costs. However, parking fees and tolls attributable to use for business purposes may be deducted as separate items.

(d) The rates prescribed do not affect a deduction for interest relating to the purchase of the automobile that is allowable under section 163 of the Code, nor a deduction for state and local taxes (other than those included in the cost of gasoline) otherwise allowable under section 164. If the automobile is operated less than 100 percent for business purposes, an allocation is required to determine the business and nonbusiness portion of the taxes and interest deduction allowable. That portion of the allowable deduction for interest and state and local taxes attributable directly to the operation of the automobile for business purposes is deductible from gross income in arriving at adjusted gross income by an employee under section 62(2)(C) and by a self-employed individual under section 62(1). The remaining portion of-the interest and state and local taxes attributable to the nonbusiness use of the automobile is deductible from adjusted gross income in arriving at taxable income only if the taxpayer itemizes deductions.

2 Limitations.

(a) The optional method is not acceptable for computing the deductible expenses of (A) vehicles used for hire, such as taxicabs, (B) two or more automobiles used simultaneously, such as in fleet operations, or (C) any vehicle that is leased, rather than owned, by the taxpayer.

(b) In the case of automobiles placed in service for business purposes after December 31, 1979, and in which the optional method was used in 1980, 1981, or 1982, depreciation will be considered to have been allowed at the rate of 7 cents per mile for 1980 and 1981, and 7.5 cents per mile in 1982, except that if the "actual cost" method was used for one or more of those years the rates above will not apply to any year in which that method was used. This depreciation will act to reduce the basis of the automobile in determining adjusted basis as required by section 1016 of the Code. An automobile placed in service after December 31, 1979, with respect to which the optional method is used is considered to have a useful life of 60,000 miles of business use at the maximum standard mileage rate determined without reference to the age of the vehicle. After 60,000 miles of business use at the maximum standard mileage rate, the automobile will be considered fully depreciated. For purposes of this paragraph, an automobile will be considered to have been driven no more than 15,000 miles in any one year, even though the actual business mileage of the automobile may be greater.

(c) If, before January 1, 1981, a taxpayer used an automobile for business purposes and used the "actual cost" method to compute costs of the automobile, the useful life of the automobile to the taxpayer is the estimated period on which he or she based the computation of the allowable straight line-depreciation deduction for that year. This rule applies even if the taxpayer uses the optional method in later tax years. Under such circumstances the automobile will be considered fully depreciated at the end of the period estimated to be its useful life to the taxpayer.

(d) With respect to automobiles that have been, or are considered to be fully depreciated based upon their use for business purposes, deductions win be accepted if computed at a standard mileage rate of 11 cents per mile for all miles of use of such automobiles attributable to business purposes.

(e) The optional method may not be used if the automobile has previously been depreciated under the "actual cost" method on a depreciation method other than straight-line, or if additional first-year depreciation has been claimed.

(f) When an employee or a self-employed individual alternates in using two automobiles on different occasions for business purposes, the total business miles of the two automobiles must be combined for purposes of the 15,000-mile annual limitation on the 2%wnt mileage rate. However, if one of the automobiles has been, or is considered to be, fully depreciated, the total business miles of the vehicles are not to be combined, because the costs of the fully depreciated automobile may be deducted only at the rate of 11 cents per mile for all its miles.

(g) If an individual replaces an automobile during the year, the total business miles of both automobiles must be combined in computing the annual deduction if the taxpayers former automobile was not, or was not considered to be, fully depreciated. However, the total business miles of the old car and the replacement car are not to be combined if the old car is, or is considered to be, fully depreciated.

(h) The optional method of computing transportation expenses provided by this section will be accepted in examining the return of an employee irrespective of whether the employee received a reimbursement or allowance for such business automobile expense from the employer, provided that such reimbursement or allowance is reflected in the return.

(i) For this optional method of computing transportation expenses to be acceptable, an employee or self-employed individual is required to establish business mileage (A) for local transportation, in accordance with section 1.162-17(d) of the regulations, and (B) for other travel, in accordance with section 1.274-5. This revenue procedure operates in lieu of the provisions of those regulations, relating to substantiation of the amount of an expenditure.

.02 Charitable, medical, or moving expenses.

1 Standard mileage rate. With respect to transportation expenses paid after December 31, 1979, for the operation of an automobile in connection with rendering gratuitous services to a charitable organization under section 170 of the Code or obtaining medical care under section 213, deductions will be accepted if computed at a standard mileage rate of 9 cents per mile. The standard mileage rate of 9 cents per mile will also be accepted with respect to such transportation expenses paid or incurred as moving expenses under section 217. Allowance of the standard mileage rate for any of these purposes is subject to the conditions and limitations set forth in the applicable sections of the Code.

(a) Because certain items, such as the proportionate share of general maintenance or general repairs, liability insurance, or depreciation in connection with the use of an automobile, may not be taken, into account in computing the amount paid for transportation with respect to rendering gratuitous services to charitable organizations or with respect to medical care or moving expenses, an individual may not use the same standard mileage rate as is permitted in section 3.01 of this revenue procedure.

(b) The use of this optional method of computing transportation expenses is in lieu of any actual transportation expenses otherwise allowable under sections 170, 213, and 217 of the Code by reason of the use of a taxpayer's automobile for transportation. However, parking fees and tolls attributable to such transportation may be deducted as separate items. The use of this optional method does not affect a deduction for any expenses relating to the automobile that are allowable under section 163 (interest) or section 164 (taxes). Since depreciation may not be taken into account in determining the deduction for charitable contributions, medical expenses, or moving expenses, no adjustment to the basis of the automobile is required because of the use of this method.

The optional method of computing transportation expenses described in this section will be accepted by the Service as being representative of the cost of operating an automobile for purposes of sections 170, 213, and 217 of the Code regardless of the method used to compute depreciation for business use of the automobile, and regardless of the number of automobiles that the taxpayer may have in operation.

.03 Actual expenses.

Use of the optional method of computing transportation expenses set out in this section is not mandatory and a taxpayer may use actual allowable expenses if records are maintained for proper substantiation.

SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES

Rev. Proc. 80-7, Rev. Proc. 80-32, and Rev. Proc. 81-54 are superseded.

SEC. 5. EFFECTIVE DATE

The rates provided in this revenue procedure are effective with respect to transportation expenses paid or incurred after December 31, 1979.