Rev. Proc. 70-25

Section 1. Purpose.

The purpose of this Revenue Procedure is to provide for an increased standard mileage rate and procedures to be followed by employees or self-employed individuals who claim deductions for the costs of operating passenger automobiles (including vehicles such as pickup or panel trucks) for business purposes under the simplified method of computing deductible costs of operating passenger automobiles for taxable years beginning after December 31, 1969.

Sec. 2. Background.

Section 162(a) of the Internal Revenue Code of 1954 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 a self-employed individual may deduct the cost of operating a passenger automobile owned by him to the extent that it is used in a trade or business. Any portion of the operating cost which is attributable to personal use, rather than use for a business purpose, is not deductible. Revenue Procedure 66-10, C.B. 1966-1, 622, established certain procedures to be followed by the Internal Revenue Service in examining income tax returns filed for taxable years beginning after December 31, 1964, by employees or self-employed individuals who claim deductions for the costs of operating passenger automobiles for business purposes. Under these procedures, a simplified method of computing deductible costs of operating passenger automobiles was accepted.

Sec. 3. Optional Method of Computing Operating Costs.

Subject to the conditions and limitations set forth below, with respect to returns filed for taxable years beginning after December 31, 1969, deductions will be accepted if computed at a standard mileage rate of (a) twelve cents per mile for the first 15,000 miles of use each year for business purposes and (b) nine 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.

.01 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 gasoline (including all taxes thereon), oil, repairs, license tags, insurance, and depreciation are included in operating and fixed costs. However, parking fees and tolls attributable to use for business purposes may be deducted as separate items. Gasoline taxes allocable to use for nonbusiness purposes (and allowable under section 164 of the Code) may be deducted in addition to the deduction computed under this method. The rate prescribed herein does not affect a deduction for interest relating to the automobile which is allowable under section 163 of the Code nor deductions for State and local taxes (other than those included in the cost of gasoline) otherwise allowable under section 164 of the Code.

.02 The use of the simplified method is limited to a self-employed individual or an employee who operates only one automobile at a time for business purposes. Where a person alternates in using different automobiles on different occasions for business purposes, the standard mileage rate applies to the total business mileage of such automobiles, as if they were one, to arrive at a deduction. Similarly, if an individual replaces his 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.

.03 This 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.

.04 In any year in which the simplified method has been used, straightline 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.

.05 This simplified method is not available for use where depreciation has been claimed in the past on an automobile by use of a depreciation method other than straight line, or where additional first-year depreciation has been claimed.

.06 The optional method provided by this Revenue Procedure will be accepted in examining the return of an employee irrespective of whether he received a reimbursement or allowance for such business automobile expenses from his employer, provided that such reimbursement or allowance is reflected in his return. For the reporting requirements of employees, see sections 1.162-17 and 1.274-5(e) of the Income Tax Regulations.

.07 For this method of computing automobile cost to be acceptable a self-employed individual or employee is required to establish his 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 of the regulations. The provisions of such regulations relating to substantiation of the amount of an expenditure are inapplicable to deductions computed under this Revenue Procedure.

Sec. 4. Effect on Other Documents.

With respect to returns filed for taxable years beginning after December 31, 1969, this Revenue Procedure supersedes Revenue Procedure 66-10, C.B. 1966-1, 622, which relates to periods after December 31, 1964.