Special Valuation Rules You may be able to use special valuation rules instead of thegeneral valuation rule to value certain fringe benefits, including theuse of any vehicle or eating facility you provide. The specialvaluation rules include the following rules. Automobile lease rule. Commuting rule. Employer-operated eating facility rule. Unsafe conditions commuting rule. Vehicle cents-per-mile rule. Conditions for use.When reporting fringe benefits, you can choose to use any of thespecial rules. However, neither you nor the employee may use a specialrule to value any benefit unless one of the following conditions ismet. You treat the value of the benefit as wages for reportingpurposes by the due date of the return (including extensions) for thetax year you provide the benefit. The employee includes the value of the benefit in income bythe due date of the return for the year the employee receives thebenefit. The employee is not a control employee as defined laterunder Commuting Rule. You demonstrate a good faith effort to treat the benefitcorrectly for reporting purposes. Using the special rules.All of the following rules apply when you use the special rules. If you use one of the special rules to value a benefit youprovide to the employee, the employee can use that special rule. Ifyou do not use one of the special rules, the employee can use aspecial rule only if you do not treat the value of the benefit aswages for reporting purposes by the due date of the return (includingextensions) and one of the conditions listed in items (2) through (4)above is met. In any case, the employee can always use the generalvaluation rule discussed earlier. If you and the employee properly use a special rule, theemployee must include in gross income the value you determine underthe rule minus any amount he or she paid you and any amount excludedby law from gross income. If you also properly determine the amount ofthe employee's working condition fringe benefit (explained later underExclusion of Certain Fringe Benefits), the employee mustinclude in gross income the net value you determined minus any amounthe or she paid you. You and the employee can use the special rule todetermine the amount the employee owes you. If you provide vehicles to more than one employee, you donot have to use the same special rule for each employee. If youprovide a vehicle for use by more than one employee (for example, anemployer-sponsored van pool), you can use any special rule. However,you must use that rule for all employees who share use of thevehicle. You can use the formulas in the special rules only withthose rules. When you properly apply a special rule to a fringebenefit, the IRS will accept your value for that fringe benefit.However, if you do not properly apply a special rule, or if you use aspecial rule but are not entitled to do so, the IRS will use thegeneral valuation rule to value the fringe benefit. More information.For more information on the special valuation rules, includingthose not discussed in this chapter (such as the rules for aircraft),see section 1.61-21(c)-(k) of the regulations. Automobile Lease Rule If you provide an employee with an automobile for an entirecalendar year, you can use the automobile's annual lease value tovalue the benefit. If you provide an employee with an automobile forless than an entire calendar year, the value of the benefit is eithera prorated annual lease value or the daily lease value. Include thelease value in the employee's wages unless it is excluded from grossincome by law. For this rule, automobile means any four-wheeled vehiclemanufactured primarily for use on public streets, roads, and highways. Benefits excluded for business use.If the employee uses the automobile for business, he or she mayqualify to exclude part of the lease value as a working conditionfringe benefit. You can reduce the amount of the lease value by theworking condition fringe and include the net amount in the employee'swages, or you can choose to include the entire lease value. SeeVehicle-allocation rules under Working ConditionFringe, later. Annual Lease Value Generally, you figure the annual lease value of an automobile asfollows. Determine the FMV of the automobile on the first date theautomobile is available to any employee for personal use. Using the following Annual Lease Value Table,read down column (1) until you come to the dollar range withinwhich the FMV of the automobile falls. Then read across to column (2)to find the annual lease value. Annual Lease Value Table   (1) (2) Annual Automobile Lease Fair Market Value Value $0 to 999 $ 600 1,000 to 1,999 850 2,000 to 2,999 1,100 3,000 to 3,999 1,350 4,000 to 4,999 1,600 5,000 to 5,999 1,850 6,000 to 6,999 2,100 7,000 to 7,999 2,350 8,000 to 8,999 2,600 9,000 to 9,999 2,850 10,000 to 10,999 3,100 11,000 to 11,999 3,350 12,000 to 12,999 3,600 13,000 to 13,999 3,850 14,000 to 14,999 4,100 15,000 to 15,999 4,350 16,000 to 16,999 4,600 17,000 to 17,999 4,850 18,000 to 18,999 5,100 19,000 to 19,999 5,350 20,000 to 20,999 5,600 accommodation in Szeged21,000 to 21,999 5,850 22,000 to 22,999 6,100 23,000 to 23,999 6,350 24,000 to 24,999 6,600 25,000 to 25,999 6,850 26,000 to 27,999 7,250 28,000 to 29,999 7,750 30,000 to 31,999 8,250 32,000 to 33,999 8,750 34,000 to 35,999 9,250 36,000 to 37,999 9,750 38,000 to 39,999 10,250 40,000 to 41,999 10,750 42,000 to 43,999 11,250 44,000 to 45,999 11,750 46,000 to 47,999 12,250 48,000 to 49,999 12,750 50,000 to 51,999 13,250 52,000 to 53,999 13,750 54,000 to 55,999 14,250 56,000 to 57,999 14,750 58,000 to 59,999 15,250 For vehicles with an FMV of more than $59,999, the annual leasevalue equals (.25 the FMV of the automobile) + $500. Fair market value.The FMV of the automobile is the amount a person would pay to buyit from a third party, in an arm's-length transaction, in the area inwhich the vehicle is bought or leased. That amount includes allpurchase expenses, such as sales tax and title fees. If you have 20 or more automobiles, see section1.61-21(d)(5)(v) of the regulations. See section1.61-21(d)(2)(ii) of the regulations if you and the employee ownor lease the automobile together. You do not have to include the FMV of a telephone or anyspecialized equipment added to, or carried in, the automobile if theequipment is necessary for your business. However, include the valueof specialized equipment in the FMV if the employee to whom theautomobile is available uses the specialized equipment in a trade orbusiness other than yours. Neither the amount the employee considers to be the value of thefringe benefit nor your cost for either buying or leasing theautomobile determines its FMV. However, see Safe-harbor value,next. Safe-harbor value.You may be able to use a safe-harbor value as the FMV. For anautomobile you bought at arm's length, the safe-harbor value is yourcost, including tax, title, and other purchase expenses. You cannothave been the manufacturer of the vehicle. For an automobile you lease, you can use any of the following asthe safe-harbor value. The manufacturer's invoice price (including options) plus4%. The manufacturer's suggested retail price minus 8%(including sales tax, title, and other expenses of purchase). The retail value of the automobile reported by a nationallyrecognized pricing source if that retail value is reasonable for thatautomobile. Items included in annual lease value table.Each annual lease value in the table includes the FMV ofmaintenance and insurance for the automobile. Do not reduce this valueby the FMV of any of these services that you did not provide. Forexample, do not reduce the annual lease value by the FMV of amaintenance service contract or insurance you did not provide. (Youcan take into account the services actually provided for theautomobile by using the general valuation rule discussed earlier.) Items not included.The annual lease value does not include the FMV of fuel you provideto an employee for personal use, regardless of whether you provide it,reimburse its cost, or have it charged to you. You must include thevalue of the fuel separately in the employee's wages. You can valuefuel you provided at FMV or at 5.5 cents per mile for all miles drivenby the employee. However, you cannot value at 5.5 cents per mile fuelyou provide for miles driven outside the United States (including itspossessions and territories), Canada, and Mexico. If you reimburse an employee for the cost of fuel, or have itcharged to you, you generally value the fuel at the amount youreimburse, or the amount charged to you if it was bought at arm'slength. If you have 20 or more automobiles, see section1.61-21(d)(3)(ii)(D) of the regulations. If you provide any service other than maintenance and insurance foran automobile, you must add the FMV of that service to the annuallease value of the automobile in determining the value of the benefit. Consistency rules.If you adopt the automobile lease rule for an automobile, thefollowing rules apply. You must adopt it by the first day you make the automobileavailable to any employee for personal use. However, the followingexceptions apply. If you adopt the commuting rule when you first make theautomobile available to any employee for personal use, you can changeto the automobile lease rule on the first day for which you do not usethe commuting rule. If you adopt the vehicle cents-per-mile rule when you firstmake the automobile available to any employee for personal use, youcan change to the automobile lease rule on the first day on which theautomobile no longer qualifies for that rule. You must use the rule for all later years in which you makethe automobile available to any employee, except that you can use thecommuting rule for any year during which use of the automobilequalifies. You must continue to use the rule if you provide areplacement automobile to the employee and your primary reason for thereplacement is to reduce federal taxes. The employee can use the automobile lease rule only if theemployee uses the rule beginning with the first day on which theautomobile is made available to the employee for personal use (and theemployer does not use the commuting rule). 4-year lease term.The annual lease values in the table are based on a 4-year leaseterm. These values will generally stay the same for the period thatbegins with the first date you use this special rule for theautomobile and ends on December 31 of the fourth full calendar yearfollowing that date. Figure the annual lease value for each later 4-year period bydetermining the FMV of the automobile on January 1 of the first yearof the later 4-year period and selecting the amount in column 2 of thetable that corresponds to the appropriate dollar range in column 1. Using the special accounting rule.If you use the special accounting rule for fringe benefitsdiscussed in Publication 15-A,you can figure the annual leasevalue for each later 4-year period at the beginning of the specialaccounting period that starts immediately before the January 1 datedescribed in the previous paragraph. For example, assume that you use the special accounting rule andthat, beginning on November 1, 1998, the special accounting period isNovember 1 to October 31. You elected to use the automobile leasevaluation rule as of January 1, 1999. You can refigure the annuallease value on November 1, 2002, rather than on January 1, 2003. Transferring an automobile from one employee to another.Unless the primary purpose of the transfer is to reduce federaltaxes, you can refigure the annual lease value based on the FMV of theautomobile on January 1 of the calendar year of transfer. However, if you use the special accounting rule for fringe benefitsdiscussed in Publication 15-A,you can refigure the annual leasevalue (based on the FMV of the automobile) at the beginning of thespecial accounting period in which the transfer occurs. If you do notrefigure the annual lease value, the employee cannot refigure it. Prorated annual lease value.If you provide an automobile to an employee for continuous periodsof 30 or more days but less than an entire calendar year, you canprorate the annual lease value. Figure the prorated annual lease valueby multiplying the annual lease value by a fraction, using the numberof days of availability as the numerator and 365 as the denominator. If you provide an automobile continuously for at least 30 days, butthe period covers 2 calendar years (2 special accounting periods ifyou are using the special accounting rule for fringe benefitsdiscussed in Publication 15-A),you can use the prorated annuallease value or the daily lease value. If you have 20 or more automobiles, see section 1.61-21(d)(6)of the regulations. If an automobile is unavailable to the employee because of his orher personal reasons (for example, if the employee is on vacation),you cannot take into account the periods of unavailability when youuse a prorated annual lease value. Caution: You cannot use a prorated annual lease value if the reduction offederal tax is the main reason the automobile is unavailable. Daily lease value.If you provide an automobile for continuous periods of one or morebut less than 30 days, use the daily lease value to figure its value.Figure the daily lease value by multiplying the annual lease value bya fraction, using four times the number of days of availability as thenumerator and 365 as the denominator. However, you can apply a prorated annual lease value for a periodof continuous availability of less than 30 days by treating theautomobile as if it had been available for 30 days. Use a proratedannual lease value if it would result in a lower valuation thanapplying the daily lease value to the shorter period of availability. Commuting Rule Under this rule, the value of the commuting use of a vehicle youprovide is $1.50 per one-way commute (that is, from home to work orfrom work to home) for each employee who commutes in the vehicle. The term vehicle means any motorized wheeled vehicle,including an automobile, manufactured primarily for use on publicstreets, roads, and highways. You can use this special rule to figure commuting value if all thefollowing requirements are met. You own or lease the vehicle and provide it to one or moreemployees for use in your trade or business. For bona fide noncompensatory business reasons, you requirethe employee to commute in the vehicle. You establish a written policy under which you do not allowthe employee to use the vehicle for personal purposes, other than forcommuting or de minimis personal use (such as a stop for a personalerrand on the way between a business delivery and the employee'shome). The employee does not use the vehicle for personal purposes,other than commuting and de minimis personal use. If this vehicle is an automobile, the employee who must useit for commuting is not a control employee (definedlater). Personal use of a vehicle is all use that is not for your tradeor business. An employer-provided vehicle generally used each workday to carryat least three employees to and from work in an employer-sponsoredcommuting pool meets requirements (1) and (2) above. Caution: Chauffeur-driven vehicle. If the vehicle is achauffeur-driven vehicle, you cannot use the commuting valuation rulefor any passenger. However, you can use it to value the commuting useof the chauffeur. Control employees.A control employee of a nongovernment employer for 1999is any employee who: Was a board- or shareholder-appointed, confirmed, or electedofficer of the employer whose pay for the year was $70,000 ormore, Was a director of the employer, Received pay for the year of $145,000 or more from theemployer, or Owned a 1% or more equity, capital, or profits interest inthe employer. Any individual who owns (or is considered to own under section318(a) of the Internal Revenue Code or principles similar to section318(a) for entities other than corporations) 1% or more of the FMV ofan entity (the "owned entity") is considered a 1% owner of allother entities grouped with the owned entity under the rules ofsection 414(b), (c), (m), or (o). An employee who is an officer ordirector of an employer is considered an officer or director of allentities treated as a single employer under section 414(b), (c), (m),or (o). A control employee of a government employer for 1999 isany: Elected official, or Employee whose pay was at least $110,700 for the year (thepay of a federal government employee at Executive Level V). For the commuting rule, the term "government" includes anyfederal, state, or local governmental unit and any of its agencies orinstrumentalities. Instead of using the above definitions, you can choose to treat allof your highly compensated employees as control employees. For thedefinition of a highly compensated employee, see Exclusion ofCertain Fringe Benefits, later. Employer-OperatedEating Facility Rule You can use this rule to determine the value of taxable meals youprovide at an employer-operated eating facility for employees. Forsituations in which you do not have to include the value of meals inan employee's wages, see chapter 3and the discussion under DeMinimis (Minimal) Fringe, later. Under this rule, you first figure the total meal valueof meals provided at the facility. Then you use that value tofigure the value for each employee under either of the following twomethods. The individual meal subsidy method. The allocated total meal subsidy method. Employer-operated eating facility.An employer-operated eating facility for employees is a facilitythat meets all the following conditions. You own or lease the facility. You operate the facility. You are considered to operate theeating facility if you have a contract with another to operateit. The facility is on or near your business premises. You provide meals (food, drinks, and related services) atthe facility during, or immediately before or after, the employee'sworkday. Total meal value.The total meal value is 150% of the direct operating costsof the eating facility. This total meal value is considered thevalue of all meals provided at that facility for employees during thecalendar year. Direct operating costs.The direct operating costs of an eating facility are the costs offood and drinks and the cost of labor for employees performingservices relating to the facility primarily on the eating facilitypremises. For example, the labor costs for cooks, waiters, andwaitresses are included in direct operating costs. If an employeeperforms the services both on and off premises, include only the laborcosts for the services performed on premises. Caution: Do not include in direct operating costs the labor cost for amanager of an eating facility who does not primarily perform serviceson the eating facility premises. Individual meal subsidy method.Under this method, the value of meals provided to a particularemployee during a calendar year is the total of the individual mealsubsidies you provide to that employee during that year. Figure theindividual meal subsidy by multiplying the price charged for aparticular meal by a fraction, using the total meal value as thenumerator and the gross receipts of the eating facility for thecalendar year as the denominator. Then subtract the amount paid by theemployee for the meal. Caution: Meal charge required. You can use the individual mealsubsidy method only if there is a charge for each meal and the pricecharged each employee is the same for any given meal. Allocated total meal subsidy method.Under this method, you figure the value of meals provided to aparticular employee by allocating the total meal subsidyamong the employees in any manner reasonable under thecircumstances. It is presumed reasonable for you to allocate the totalmeal subsidy on a per-employee basis if you can show that you providedeach employee with approximately the same number of meals at thefacility. Total meal subsidy.This is the total meal value (explained earlier) minus the grossreceipts of the facility. Unsafe Conditions Commuting Rule Under this rule, the value of the commuting use oftransportation you provide each employee solely because ofunsafe conditions is $1.50 per one-way commute (that is,from home to work or from work to home). You can use this special rule to figure commuting value if all thefollowing requirements are met. The employee would ordinarily walk or use publictransportation for commuting. You establish a written policy under which you do not allowthe employee to use the transportation for personal purposes otherthan commuting because of unsafe conditions. The employee does not use the transportation for personalpurposes other than commuting because of unsafe conditions. The employee is a qualified employee. This special valuation rule applies on a trip-by-trip basis. If therequirements are not met for any trip, use the FMV of thetransportation to determine the amount to include in the employee'swages. Transportation.This rule applies to transportation of a qualified employee to orfrom work by any motorized wheeled vehicle (including an automobile)manufactured for use on public streets, roads, and highways. You orthe employee must buy the transportation from a party that is notrelated to you. If the employee buys it, you must reimburse theemployee for its cost (for example, cabfare) under a bona fidereimbursement arrangement. Unsafe conditions.Unsafe conditions exist if, under the facts and circumstances, areasonable person would consider it unsafe for the employee to walk oruse public transportation at the time of day the employee mustcommute. One factor indicating whether it is unsafe is the history ofcrime in the geographic area surrounding the employee's workplace orhome at the time of day the employee commutes. Qualified employee.A qualified employee for 1999 is one who meets the followingrequirements. Performed services during the year. Was paid on an hourly basis. Was not claimed under section 213(a)(1) of the Fair LaborStandards Act of 1938 (as amended) to be exempt from the minimum wageand maximum hour provisions. Was within a classification for which you actually paid, orspecified in writing you would pay, overtime pay of at least one andone-half times the regular rate provided in section 207 of the 1938Act. Received pay of not more than $70,000 during theyear. However, the employee will not be considered a qualified employeeif you do not comply with the recordkeeping requirements concerningthe employee's wages, hours, and other conditions and practices ofemployment under section 211(c) of the 1938 Act and the relatedregulations. Vehicle Cents-Per-Mile Rule Under this rule, you determine the value of a vehicle you provideto an employee for personal use by multiplying the standard mileagerate by the total miles the employee drives the vehicle for personalpurposes. For 1999, the rate is 32 1/2 cents a mile forall personal miles driven before April 1. The rate is 31 cents a milefor personal miles driven after March 31. You can use the vehicle cents-per-mile rule if either of thefollowing requirements is met. You reasonably expect the vehicle to be regularly used inyour trade or business throughout the calendar year (or for a shorterperiod during which you own or lease it). The vehicle meets the mileage rule requirements discussedlater. Caution: When you cannot use the cents-per-mile rule. You cannotuse the vehicle cents-per-mile rule for an automobile first madeavailable to an employee for personal use in 1999 if the FMV of theautomobile is more than $15,500. If you and the employee own or leasethe automobile together, see section 1.61-21(e)(1)(iii) of theregulations. Apply the standard mileage rate only to personal miles. Disregardbusiness miles. For example, if the employee drove 20,000 personalmiles and 35,000 business miles in the last 9 months of 1999, thepersonal use value of the vehicle for those months is $6,200 (20,000 .31). Personal use is any use of the vehicle other than use in your tradeor business. For the vehicle cents-per-mile rule, a vehicle is anymotorized wheeled vehicle, including an automobile, manufacturedprimarily for use on public streets, roads, and highways. Regular use in your business.Determine whether a vehicle is regularly used in your trade orbusiness on the basis of all the facts and circumstances. A vehicle isregularly used in your trade or business if it meets any of thefollowing safe-harbor conditions. At least 50% of the vehicle's total annual mileage is foryour trade or business. You sponsor a commuting pool that generally uses the vehicleeach workday to drive at least 3 employees to and from work. Infrequent business use of the vehicle, such as for occasionaltrips to the airport or between your multiple business premises, isnot regular use of the vehicle in your trade or business. Mileage rule.If you provide an employee with a vehicle that you do not expectthe employee to use regularly in your trade or business but that meetsthe mileage rule, you can use the cents-per-mile method to value thebenefit. A vehicle meets the mileage rule for a calendar year if bothof the following requirements are met. The vehicle is actually driven at least 10,000 miles duringthe year. The vehicle is used during the year primarily byemployees. Consider the vehicle used primarily by employees if they use itconsistently for commuting. For example, if only one employee uses avehicle during the calendar year and that employee drives the vehicleat least 10,000 miles in that year, the vehicle meets the mileage ruleeven if all miles driven by the employee are personal. Do not treatuse of the vehicle by an individual (other than the employee) whoseuse would be taxed to the employee as use by the employee. If you ownor lease the vehicle only part of the year, reduce the 10,000 milerequirement proportionately. Items included in cents-per-mile rate.The cents-per-mile rate includes the FMV of maintenance andinsurance for the vehicle. Do not reduce the rate by the FMV of anyservice included in the rate that you did not provide. (You can takeinto account the services actually provided for the vehicle by usingthe general valuation rule discussed earlier.) For miles driven in the United States, its territories andpossessions, Canada, and Mexico, the cents-per-mile rate includes theFMV of fuel you provide. If you do not provide fuel, you can reducethe rate by no more than 5.5 cents. For special rules that apply to fuel you provide for miles drivenoutside the United States, Canada, and Mexico, see section1.61-21(e)(3)(ii)(B) of the regulations. The FMV of any other service you provide for a vehicle is notincluded in the cents-per-mile rate. Use the general valuation rule tovalue these services. Consistency rules.If you adopt the cents-per-mile rule for an automobile, thefollowing rules apply. You must adopt it by the first day you make the automobileavailable to any employee for personal use. However, if you adopt thecommuting rule when you first make the automobile available to anyemployee for personal use, you can change to the cents-per-mile ruleon the first day for which you do not use the commuting rule. You must use the rule for all later years in which you makethe automobile available to any employee and the automobile qualifies,except that you can use the commuting rule for any year during whichuse of the automobile qualifies. However, if the vehicle does notqualify for the cents-per-mile rule during a later year, you can adoptfor that year and thereafter any other special rule for which thevehicle then qualifies. You must continue to use the rule if you provide areplacement automobile to the employee and your primary reason for thereplacement is to reduce federal taxes. The employee can use the vehicle cents-per-mile rule only ifthe employee uses the rule beginning with the first day on which theautomobile is made available to the employee for personal use (and theemployer does not use the commuting rule).