The Internal Revenue Service on Nov. 27 issued Revenue Procedure 2007-70, which updates the standard mileage rate to use in 2008 in computing the deductible costs of operating a personal vehicle for business purposes.
This update further amplifies the importance of Revenue Ruling 2006-56, in which the IRS applied the per diem and accountable plan rules outline in Rev. Proc. 2007-63, and deemed what constitutes a long-haul trucking company’s per diem reimbursement plan as abusive under the accountable plan rules. Rev. Proc. 2007-70 specifically mentions Rev. Ruling 2006-56 as guidance for treatment of excess mileage reimbursements made under a deemed abusive accountable plan.
Rev. Proc. 2007-63 addresses excess per diem payments that are not tested, along with what happens when they are tested by the IRS and it is determined that excess per diem was paid and was not reimbursed by the driver back to the company or added back to the driver’s W-2 income on at least a monthly basis. Rev. Proc. 2007-63 addresses the circumstances where a pattern of abuse may exist, and the penalties that may apply if the abuse is so determined.
The result would be a total disallowance of all per diem payments as a reimbursement cost, and require all per diem payments to be treated as W-2 income. An incorrect reporting of a driver’s W-2 would result in the drivers having to file amended returns, which could cost the company a significant amount of money in payroll taxes, penalties, interest and increases in worker’s compensation premium due to the increased wages.
The IRS has stated that it will begin strictly enforcing the accountable plan rules for plan years beginning on or after Jan. 1.
The IRS also recently announced that the standard mileage rates for use of automobiles and light trucks will be 50.5 cents per mile for business miles driven, effective Jan. 1. Vehicles used for hire and certain depreciated and expensed are among the exclusions.