IRS Clarifies 2018 Standard Mileage Rates Notice in Light of New Tax Law

(Parker Tax Publishing June 2018)

The IRS modified Notice 2018-3, issued in December 2017, to provide additional information in light of changes made by the Tax Cuts and Jobs Act of 2017. Notice 2018-42.

In Notice 2018-42, the IRS clarified that (1) while Notice 2018-3 provides that the standard mileage rate for 2018 is 54.5 cents per mile for all miles of business use including unreimbursed employee travel expenses deductible as a miscellaneous itemized deduction, deductions for such unreimbursed business expenses are not allowed for years 2018-2025; (2) the 2018 standard mileage moving rate can only be used by members of the U.S. Armed Forces on active duty who move pursuant to a military order and incident to a permanent change of station; and (3) because of increased depreciation limitations for passenger automobiles placed in service after December 31, 2017, the maximum standard automobile cost for purposes of applying the fixed and variable rate (FAVR) allowance may not exceed $50,000 for passenger automobiles (including trucks and vans) placed in service after December 31, 2017.

On December 14, 2017, the IRS issued Notice 2018-3, which provides the optional 2018 standard mileage rates for taxpayers to use in computing the deductible costs of operating an automobile for business, charitable, medical, or moving expense purposes. On December 22, the Tax Cuts and Jobs Act of 2017 (TCJA) was enacted into law. TCJA amended Code Sec. 67, relating to the deduction of miscellaneous itemized deductions, including the deduction of unreimbursed employee travel expenses. TCJA also amended Code Sec. 217, relating to the deduction for moving expenses, and increased the depreciation limitations for passenger automobiles placed in service after December 31, 2017.

In Notice 2018-3, the IRS identified a standard mileage rate of 54.5 cents per mile for all miles of business use (business standard mileage rate) that taxpayers were to use, including to deduct unreimbursed employee travel expenses as a miscellaneous itemized deduction under Code Sec. 67. TCJA suspends all miscellaneous itemized deductions that are subject to the two-percent of adjusted gross income floor under Code Sec. 67, including unreimbursed employee travel expenses. This suspension applies to tax years beginning after December 31, 2017, and before January 1, 2026. Thus, the business standard mileage rate listed in Notice 2018-3 cannot be used to claim an itemized deduction for unreimbursed employee travel expenses during the suspension. However, deductions for expenses that are deductible in determining adjusted gross income are not suspended. For example, members of a reserve component of the Armed Forces of the United States, state or local government officials paid on a fee basis, and certain performing artists are entitled to deduct unreimbursed employee travel expenses as an adjustment to total income, not as an itemized deduction on Schedule A of Form 1040, and therefore may continue to use the business standard mileage rate.

For the use of an automobile as a part of a move for which the expenses are deductible under Code Sec. 217, Notice 2018-3 provided a standard mileage rate of 18 cents per mile. For tax years beginning after December 31, 2017, and before January 1, 2026, TCJA suspends the deduction for moving expenses. This suspension does not apply to members of the Armed Forces of the United States on active duty who move pursuant to a military order and incident to a permanent change of station to whom Code Sec. 217(g) applies. Thus, other than those to whom Code Sec. 217(g) applies, the standard mileage rate is not applicable for the use of an automobile as part of a move occurring during the suspension.

In Notice 2018-3, the IRS identified a maximum standard automobile cost of $27,300 for passenger automobiles (excluding trucks and vans) and $31,000 for trucks and vans for purposes of substantiating reimbursement allowances under a fixed and variable rate (FAVR) plan. However, TCJA increased the depreciation limitations for passenger automobiles placed in service after December 31, 2017. As a result, the maximum standard automobile cost may not exceed $50,000 for passenger automobiles (including trucks and vans) placed in service after December 31, 2017.

For a discussion of the tax treatment of miscellaneous itemized deductions, see Parker Tax ¶85,100. For a discussion of the tax treatment of moving expenses, see Parker Tax ¶80,500. For a discussion of the substantiation of reimbursement allowances under a FAVR plan, see Parker Tax ¶91,130.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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