Substantiation Requirements and Qualified Nonpersonal Use Vehicles

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[REG-106595-22]</DEPDOC> <RIN>RIN 1545-BQ83</RIN> <SUBJECT>Substantiation Requirements and Qualified Nonpersonal Use Vehicles</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document sets forth proposed regulations relating to the definition of qualified nonpersonal use vehicles. Qualified nonpersonal use vehicles are excepted from the substantiation requirements that apply to certain listed property. These proposed regulations add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew as a new type of qualified nonpersonal use vehicle. These regulations affect governmental units that provide firefighter or rescue squad or ambulance crew member employees with unmarked qualified nonpersonal use vehicles and the employees who use those vehicles. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Written or electronic comments and requests for a public hearing must be received by March 3, 2025. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at <E T="03">http://www.regulations.gov</E> (indicate IRS and REG-106595-22) by following the online instructions for submitting comments. Requests for a public hearing must be submitted as prescribed in the “Comments and Requests for a Public Hearing” section. Once submitted to the Federal Rulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically or on paper, to the IRS's public docket. Send paper submissions to CC:PA:01:PR (REG-106595-22), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, Stephanie Caden at (202) 317-4750; concerning submissions of comments or requests for a public hearing, the Publications and Regulations section by email at <E T="03">publichearings@irs.gov</E> (preferred) or (202) 317-6901 (not toll-free numbers). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Authority</HD> This notice of proposed rulemaking contains proposed regulations issued under the authority granted to the Secretary of the Treasury or her delegate (Secretary) by sections 274(p) and 132(o) of the Internal Revenue Code (Code) that would amend the Income Tax Regulations (26 CFR part 1) under sections 274(i) and 132(d) related to qualified nonpersonal use vehicles. Section 274(p) provides the Secretary with an express grant of regulatory authority with respect to section 274 as the Secretary may deem necessary to carry out the purposes of that section. Section 132(o) provides the Secretary with an express grant of regulatory authority with respect to section 132 to prescribe such regulations as may be necessary or appropriate to carry out the purposes of that section. In addition, section 7805(a) authorizes the Secretary to prescribe all needful rules and regulations for the enforcement of the Code. <HD SOURCE="HD1">Background</HD> In general, section 274 limits or disallows deductions for certain expenditures that otherwise would be allowable under chapter 1 of the Code, primarily under section 162(a), which allows a deduction for ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Section 274(d), as relevant to these proposed regulations, provides that a taxpayer is not allowed a deduction or credit for certain expenses unless the expenses are substantiated by adequate records or by sufficient evidence corroborating the taxpayer's own statement as to the amount, time and place, business purposes of the expenditure, and the business relationship to the taxpayer of the person receiving the benefit. These substantiation requirements apply to expenses incurred in the use of any listed property, as defined in section 280F(d)(4), which includes any passenger automobile and any other property used as a means of transportation. In 1985, Congress modified section 274(d) and added section 274(i), creating an exception from the substantiation requirements for qualified nonpersonal use vehicles. Public Law 99-44 2, 99 Stat. 77 (1985). Section 274(i) provides that the term “qualified nonpersonal use vehicle” means any vehicle, which by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes. Both the business and personal use of an employer-provided vehicle that is a qualified nonpersonal use vehicle under section 274(i) qualifies under section 132(d) as a working condition fringe benefit that is excluded from the employee's income. Thus, if an employer provides an employee with a qualified nonpersonal use vehicle, the employee does not need to keep records of how the vehicle is used, and the total use of the vehicle is excluded from the employee's income as a working condition fringe benefit under section 132(d). <E T="03">See</E> §§ 1.132-5(h) and 1.274-5(k). The legislative history to section 274(i) includes examples of qualified nonpersonal use vehicles such as school buses, qualified specialized utility repair trucks, qualified moving vans, clearly marked police and fire vehicles, and unmarked law enforcement vehicles. H.R. Rep. No. 99-67, at 16 (1985) (Conf. Rep.). The legislative history indicates that Congress intended the IRS and the Treasury Department to expand the list to include other vehicles that, by reason of their nature, are highly unlikely to be used more than a very minimal amount for personal purposes. H.R. Rep. No. 99-34, at 11 (1985). Temporary Regulations § 1.274-5T(k) and (l) were issued in 1985, identifying categories of qualified nonpersonal use vehicles and providing definitions (by cross reference) of terms such as “automobile,” “vehicle,” and “personal use.” TD 8061, 50 FR 46006, 46033, and 46036. Police and fire vehicles that are clearly marked and law enforcement vehicles that are unmarked were included as categories of qualified nonpersonal use vehicles. However, clearly marked vehicles provided to Federal, State, and local government workers who respond to emergency situations as public safety officers but who are not employed by either a fire department or police department were not included as qualified nonpersonal use vehicles. In 2008, proposed regulations were issued to incorporate the text of § 1.274-5T(k) and add clearly marked public safety officer vehicles as a new type of qualified nonpersonal use vehicle. 73 FR 32500. An example illustrating the application of the rules to a clearly marked public safety officer vehicle was included at § 1.274-5(k)(8) as <E T="03">Example 3.</E> In 2010, final regulations were published adding clearly marked public safety officer vehicles to the list of qualified nonpersonal use vehicles. TD 9483, 75 FR 27934 (current regulations). As a result, emergency responders who are provided a clearly marked vehicle receive the same tax treatment whether they work for the police department, fire department, or other governmental unit, or any agency or instrumentality thereof. <HD SOURCE="HD1">Explanation of Provisions</HD> The Treasury Department and the IRS have become aware that certain emergency responders not covered by the current regulations are provided unmarked vehicles by a governmental unit or an agency or instrumentality thereof (governmental unit). In particular, stakeholders have commented that fire chiefs or members of rescue squads or ambulance crews who, when not on a regular shift, need to be on call at all times to respond to emergencies will often be assigned unmarked command vehicles to travel safely and quickly to a scene and perform emergency services. While the authorized use of unmarked vehicles by law enforcement officers employed on a full-time basis by a governmental unit that is responsible for the prevention or investigation of crime involving injury to persons or property (including apprehension or detention of persons for such crimes) satisfies the current regulations governing qualified nonpersonal use vehicles, the use of unmarked vehicles provided to firefighters or members of a rescue squad or ambulance crew does not satisfy the current regulations. Section 274(i) defines a qualified nonpersonal use vehicle as one which, by reason of its nature, “is not likely to be used more than a de minimis amount for personal purposes.” The current regulations define qualified nonpersonal use vehicles to include clearly marked police, fire, or public safety officer vehicles that are owned or leased by a governmental unit and required to be used for commuting by a police officer, firefighter, or public safety officer (as defined in section 402(l)(4)(C)) who, when not on a regular shift, is on call at all times. Any personal use (other than commuting) of the vehicle outside the limit of the police officer's arrest powers or the firefighter's or public safety officer's obligation to respond to an emergency must be prohibited by the governmental unit. <E T="03">See</E> § 1.274-5(k)(2)(ii)(A) and (k)(3). The various examples included in § 1.274-5(k)(8) illustrate that a prohibition on personal use (other than commuting) is intended to exist in situations where both commuting and only de minimis personal use, such as personal errands, are permitted. The current regulations also define qualified nonpersonal use vehicles as including unmarked law enforcement vehicles owned or leased by Federal, State, county, or local go ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 31k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━