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IRS increases mileage rate

Business standard mileage rate increases for last half of 2008 other rates also rise

Mike Habib, EA IRS has announced that the optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) will increase 8¢ from 50.5¢ to 58.5¢ per mile for business travel from July 1, 2008 to Dec. 31, 2008 to better reflect the real cost of operating an auto in this period of rapidly rising gas prices. The rate for using a car to get medical care or in connection with a move that qualifies for the moving expense will also increase 8¢ for the last half of 2008 from 19¢ to 27¢ per mile.

    Observation: IRS’s increase in the business standard mileage rate is undoubtedly a result of recent pressure brought to bear on IRS to take action to relieve taxpayers suffering from skyrocketing gas prices (see Newsstand e-mail 6/18/08). On June 11, 2008, Senator Norm Coleman (R-MN) sent a letter to IRS Commissioner Shulman, requesting that IRS increase the 2008 standard mileage rates to better reflect the high cost of travel. Coleman noted that in the past, in 2005, IRS raised the standard mileage rates for the last four months of the year, rather than waiting until year-end, due to a large increase in gas prices. Earlier, on June 6, 2008, National Treasury Employees Union (NTEU) President Colleen Kelley also wrote to Commissioner Shulman, on behalf of federal government employees, asking him to consider making a mid-year adjustment to the 2008 standard mileage rates.

    Observation: The plight of taxpayers suffering from ever increasing gas prices has not been ignored by legislators. On May 19, 2008, Sen. Charles Schumer (D-NY) introduced a bill in the Senate, S. 3032, the “Reimburse Our American Drivers (ROAD) Act of 2008,” that would temporarily increase the standard mileage rate to 70¢ per mile on travel for business, medical, and moving expense-related purposes. Federal employees would also be allowed to use this rate. The rate would be in effect during all of 2008. The legislation has been referred to the Senate Finance Committee for consideration.

    Observation: As the gas prices at the pump continue to rise at a record breaking pace, it is questionable whether the additional 8¢ per mile will provide significant relief to taxpayers, or turn out to be a matter of too little too late.

Background. The mileage allowance deduction replaces separate deductions for lease payments (or depreciation if the car is purchased), maintenance, repairs, tires, gas, oil, insurance and license and registration fees. The taxpayer may, however, still claim separate deductions for parking fees and tolls connected to business driving. (Rev Proc 2007-70, Sec. 5.04) IRS generally adjusts the standard mileage rate annually, based on a yearly study of the fixed and variable costs of operating an automobile.

Employers that require employees to supply their own autos may reimburse them at a rate that doesn’t exceed the business mileage allowance for employment-connected business mileage, whether the autos are owned or leased. (Rev Proc 2007-70, Sec. 9.01) Additionally, an employee’s personal use of lower-priced company autos may be valued at the optional mileage allowance if the conditions specified in Reg. § 1.61-21(e)(1) are met.

A separate rate for using a car to get medical care or in connection with a move that qualifies for the moving expense deduction. (Rev Proc 2007-70, Sec. 7.02) The mileage rate for driving an auto for charitable use (14¢ per mile) is a statutory rate that’s not adjusted for inflation. (Rev Proc 2007-70, Sec. 7.01)

When the new rates are effective. The revised standard mileage rates in Ann. 2008-63 apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes on or after July 1, 2008, and to mileage allowances that are paid both (1) to an employee on or after July 1, 2008; and (2) with respect to transportation expenses paid or incurred by the employee on or after July 1, 2008.

However, the standard mileage rates in Rev Proc 2007-70, 2007-50 IRB 1162, continue to apply to deductible transportation expenses paid or incurred for business, medical, or moving expense purposes before July 1, 2008, and to mileage allowances paid: (1) to an employee before July 1, 2008, or (2) with respect to transportation expenses paid or incurred by the employee before July 1, 2008. All other provisions of Rev Proc 2007-70 remain in effect. (Ann. 2008-63)

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