Rev. Proc. 80-7

Section 1. Purpose The purpose of this revenue procedure is to provide increased standard mileage rates under the simplified, optional method described below for employees or self-employed individuals to use in computing deductible costs of operating passenger automobiles (including vans, pickup, 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.

A further purpose of this revenue procedure is to provide that, for this optional method, an automobile that has been used more than five years for business is considered to be fully depreciated unless the taxpayer has elected to depreciate the automobile over a shorter useful life.

Sec. 2. Background

Rev. Proc. 74-23, 1974-2 C.B. 476, as updated by Rev. Proc. 77-40, 1977-2 C.B. 574, provides standard mileage rates for employeees and self-employed individuals who claim deductions for the costs of operating automobiles for business purposes. Rev. Proc. 74-24, 1974-2 C.B. 477, provides the standard mileage rate for computing the cost of rendering gratuitous services to a charitable organization or for transportation for medical care. Rev. Proc. 74-25, 1974-2 C.B. 477, provides the standard mileage rate for computing deductible costs of operating an automobile in connection with moving expenses. Rev. Proc. 75-3, 1975-1 C.B. 643, provides the standard mileage rate for automobiles that have been fully depreciated under the straight-line method of depreciation. Rev. Proc. 77-36, 1977-2 C.B. 568, clarified Rev. Proc. 74-23 to point out that interest and state and local taxes are deductible in addition to the amounts computed using the standard mileage rate.

Section 162(a) of the Internal Revenue Code provides that there shall be allowed as a deduction 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 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 rate.

Subject to the conditions and limitations set forth below, with respect to transportation expenses paid or incurred after December 31, 1978, deductions will be accepted if computed at a standard mileage rate of (a) 18.5 cents per mile for the first 15,000 miles of use each year for business purposes, and (b) 10 cents per mile for use for business purposes in excess of 15,000 miles per year. Computation under this method is optional on a yearly basis.

A deduction computed under this method shall be in lieu of all 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.

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 may be deducted 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 may be deducted from adjusted gross income in arriving at taxable income provided the taxpayer itemizes deductions.

2 Limitations.

When an employee or a self-employed individual alternates in using different automobiles on different occasions for business purposes, the standard mileage rates apply to the total business mileage of such automobiles, as if they were one, to arrive at a deduction. Similarly, if an individual replaces an automobile during the year, the total business mileage for the year of both automobiles must be used, as if they were one, in applying the standard mileage rate.

The optional method is not acceptable for computing the deductible costs of (A) vehicles used for hire, such as taxicabs, or (B) two or more automobiles used simultaneously, such as in fleet operations.

In any year in which this optional method has been used, straight-line depreciation will be considered to have been allowed. The allowable depreciation will act to reduce the basis of the automobile in determining adjusted basis as required by section 1016(a) of the Code. This optional method may not be used if the automobile has previously been depreciated on a depreciation method other than straight-line, or if additional first-year depreciation has been claimed.

For taxable years beginning after December 31, 1979, an automobile used by a taxpayer who uses this optional method of computing costs of an automobile for business purposes is deemed to have a useful life of five years and the automobile will be considered to have become fully depreciated at the end of five years.

If, at any time during the period that the taxpayer uses the automobile for business purposes, the taxpayer computes and deducts the actual costs of all operating and fixed costs of the automobile for business purposes using a useful life of less than five years, the useful life of the automobile to that taxpayer is the estimated period on which the taxpayer bases the computation of the allowable straight-line depreciation deduction for that year. Thereafter, regardless of whether the taxpayer uses the "actual cost" method or this optional method for subsequent taxable years, the automobile will be considered fully depreciated at the end of the period estimated to be its useful life to that taxpayer.

With respect to automobiles that have been, or are considered to be, fully depreciated under the straight-line method, based upon their use for business purposes, deductions will be accepted if computed at a standard mileage rate of 10 cents per mile for all miles of use of such automobiles attributable to business purposes.

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.

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 such regulations relating to substantiation of the amount of an expenditure.

.02 Charitable, medical, or moving expenses.

A taxpayer who incurs costs of operating an automobile for transportation in connection with rendering gratuitous services to a charitable organization under section 170 of the Code, in connection with medical care under section 213, or for moving expenses under section 217 will be permitted to claim as a deduction the standard mileage rate of eight cents per mile, subject to the conditions and limitations set forth in these sections.

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 the rendering of 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.

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 Internal Revenue 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 Documents

Rev. Proc. 74-23, Rev. Proc. 74-24, Rev. Proc. 74-25, Rev. Proc. 75-3, Rev. Proc. 77-36, and Rev. Proc. 77-40 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, 1978.

The provision in section 3.012 deeming an automobile used for business purposes to be fully depreciated at the end of five years is effective for taxable years beginning after December 31, 1979.