[Federal Register Volume 75, Number 96 (Wednesday, May 19, 2010)]
[Rules and Regulations]
[Pages 27934-27938]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-11767]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9483]
RIN 1545-BH65


Qualified Nonpersonal Use Vehicles

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document contains final regulations relating to qualified 
nonpersonal use vehicles as defined in section 274(i). Qualified 
nonpersonal use vehicles are excepted from the substantiation 
requirements of section 274(d)(4) that apply to listed property as 
defined in section 280F(d)(4). These final regulations add clearly 
marked public safety officer vehicles as a new type of qualified 
nonpersonal use vehicle. These final regulations affect employers that 
provide their employees with qualified nonpersonal use vehicles and the 
employees who use such vehicles.

DATES: Effective Date: These regulations are effective on May 19, 2010.
    Applicability Date: These regulations apply to uses of clearly 
marked public safety officer vehicles occurring after May 19, 2010.

FOR FURTHER INFORMATION CONTACT: Don Parkinson at (202) 622-6040 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    This document contains final Income Tax Regulations under section 
274(i) added by section 2(b) of Public Law 99-44 (May 24, 1985), which 
provides a definition of qualified nonpersonal use vehicle. Temporary 
Regulation Sec.  1.274-5T(k), identifying categories of qualified 
nonpersonal use vehicles and Temporary Regulation Sec.  1.274-5T(l), 
providing for definitions of the terms ``automobile,'' ``vehicle,'' 
``employer,'' ``employee,'' and ``personal use'' were issued in 1985. 
(TD 8061 1982-5 CB 93 (1985)). A notice of proposed rulemaking was 
issued by cross-reference to Temporary Regulation Sec.  1.274-5T(k). 
(LR-145-84, 50 FR 46088, 1985-2 CB 809 (1985)).
    On June 9, 2008, proposed regulations (REG-106897-08) were 
published in the Federal Register (73 FR 32500). The proposed 
regulations incorporated the text of Sec.  1.274-5T(k) and added 
clearly marked public safety officer vehicles as a new type of 
qualified nonpersonal use vehicle, listed along with clearly marked 
police and fire vehicles at Sec.  1.274-5(k)(2)(ii)(A). A definition of 
clearly marked public safety officer vehicles was added to the 
provision defining clearly marked police and fire vehicles at Sec.  
1.274-5(k)(3), and an example illustrating application of the rules to 
a public safety officer vehicle was added at Sec.  1.274-5(k)(8) 
Example 3. The proposed regulations incorporated the text of Sec.  
1.274-5T(l) with no changes. The corresponding provisions of the 
proposed regulations in LR-145-84 were withdrawn on June 8, 2008.
    Written public comments on the proposed regulations at Sec.  1.274-
5(k) and (l) were received and no hearing was requested. After 
consideration of all the comments, these final regulations adopt the 
provisions of the proposed regulations with an amendment to Example 3 
and the provision of a new Example 4 in Sec.  1.274-5(k)(8) which are 
intended to assist taxpayers in determining whether individual 
employees meet the definition of public safety officer. The temporary 
regulations at Sec.  1.274-5T(k) and (l) are withdrawn concurrently 
with the publication of these final regulations in the Federal 
Register. The remaining temporary regulations at Sec.  1.274-5T are 
unaffected by this Treasury decision.

Summary of Comments and Explanation of Provisions

    Section 274(d) provides that a taxpayer is not allowed a deduction 
or credit for certain expenses unless the expenses are substantiated. 
These substantiation requirements apply to expenses incurred in the of 
use of any listed property (defined in section 280F(d)(4)), which 
includes any passenger automobile and any other property used as a 
means of transportation. Section 274(d) does not apply to any qualified 
nonpersonal use vehicle as defined in section 274(i). Both business and 
personal use of a vehicle that meets the criteria to be a qualified 
nonpersonal use vehicle under section 274(i) will also qualify as a 
working condition fringe benefit that is excluded from the recipient's 
income

[[Page 27935]]

under section 132(d). 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 both the business and the 
personal use of the vehicle will be excluded from the employee's income 
as a working condition fringe benefit under section 132(d).
    Section 274(i) provides that a qualified nonpersonal use vehicle is 
any vehicle which by reason of its nature is not likely to be used more 
than a de minimis amount for personal purposes. The legislative history 
to section 274(i) provided a list of qualified nonpersonal use vehicles 
and identified a number of examples of qualified nonpersonal use 
vehicles such as school buses, qualified specialized utility repair 
trucks, and qualified moving vans. The legislative history indicated 
that Congress wanted the Commissioner to expand the list to include 
other vehicles appropriate for listing because by their nature it is 
highly unlikely that they will be used more than a very minimal amount 
for personal purposes. H.R. Rep. No. 99-34, at 11 (1985).
    Passenger automobiles such as sedans and sport utility vehicles are 
generally not exempt from taxation as qualified nonpersonal use 
vehicles because by design they can easily be used for personal 
purposes. However, unmarked law enforcement vehicles and clearly marked 
police and fire vehicles are included in the list of qualified 
nonpersonal use vehicles set forth in the legislative history to 
section 274(i) and incorporated into these final regulations.
    Under prior rules, clearly marked vehicles provided to Federal, 
State and local government workers who respond to emergency situations 
did not satisfy the current regulations governing qualified nonpersonal 
use vehicles if the individual workers were not employed by either the 
fire department or police department. These final regulations, 
consistent with the proposed regulations, add clearly marked public 
safety officer vehicles to the list of qualified nonpersonal use 
vehicles so that emergency responders who are not employed by either 
the fire department or police department receive the same treatment as 
those who work for the police or fire department.
    A clearly marked public safety officer vehicle is a vehicle owned 
or leased by a governmental unit or any agency or instrumentality 
thereof, that is required to be used for commuting by a public safety 
officer as defined in section 402(l)(4)(C) who, when not on a regular 
shift, is on call at all times, provided that any personal use (other 
than commuting) of the vehicle outside the limit of the public safety 
officer's obligation to respond to an emergency is prohibited by such 
governmental unit. A public safety officer vehicle is clearly marked 
if, through painted insignia or words, it is readily apparent that the 
vehicle is a public safety officer vehicle.
    Section 402(l)(4)(C) provides that the term ``public safety 
officer'' shall have the same meaning given such term by the Omnibus 
Crime Control and Safe Streets Act of 1968, as codified at 42 U.S.C. 
3796b(9)(A). The definition of public safety officer is part of the 
Public Safety Officer's Benefits Act which was enacted as part L of 
Title I of the Omnibus Crime Control and Safe Streets Act of 1968. 42 
U.S.C. 3796b(9)(A) defines public safety officer as ``an individual 
serving a public agency in an official capacity, with or without 
compensation, as a law enforcement officer, a firefighter, a chaplain, 
or as a member of a rescue squad or ambulance crew.''
    Some commenters suggested eliminating some of the requirements 
pertaining to qualified nonpersonal use vehicles. In particular, 
commenters suggested elimination of the requirement that the vehicle be 
clearly marked, or the requirement that the individual be on call at 
all times, or the requirement that the vehicle be specially equipped.
    Qualified nonpersonal use vehicles were exempted from the 
substantiation and recordkeeping requirements imposed under section 
274(d) and minimal personal use of such vehicles was excluded from 
income because the nature of the vehicles prevents more than a de 
minimis amount of personal use. If an individual is not on call at all 
times, personal use may be more than de minimis. If the vehicle is not 
required to be specially equipped or clearly marked, the vehicle will 
function easily as a personal use vehicle and is not readily 
distinguishable from vehicles routinely used for personal purposes. 
Thus, these suggested changes were not adopted because they conflict 
with the underlying goal and purpose of the statute.
    A number of comments were made urging that various specific types 
of workers be included within the definition ``public safety officer.'' 
For example, commenters suggested the definition of public safety 
officer should be expanded to include employees who respond to local 
disasters such as flash floods, pipeline ruptures, hazardous material 
accidents, bridge collapses, and mining accidents. Additionally 
commenters suggested that child protective service workers, emergency 
management personnel, and members of Incident Management Teams which 
are part of the Department of Homeland Security's National Incident 
Management System should all be included in the definition of public 
safety officer.
    The determination of the status of an individual as a public safety 
officer is made pursuant to a facts and circumstances analysis based on 
an evaluation of the relevant criteria in the Public Safety Officers' 
Benefits Act of 1978 and its regulations (PSOB Regulations, 28 CFR part 
32). The PSOB regulations set forth criteria to be used in determining 
whether individual workers are public safety officers. For example, the 
PSOB Regulations at 28 CFR 32.3 define ``rescue squad or ambulance 
crew'' as follows: ``a squad or crew whose members are rescue workers, 
ambulance drivers, paramedics, health-care responders, emergency 
medical technicians, or other similar workers who--
    (1) Are trained in rescue activity or the provision of emergency 
medical services; and
    (2) As such members, have the legal authority and responsibility 
to--
    (i) Engage in rescue activity; or
    (ii) Provide emergency medical services.
    Rescue activity means search or rescue assistance in locating or 
extracting from danger persons lost, missing, or in imminent danger of 
serious bodily harm.
    Emergency medical services means--
    (1) Provision of first-response emergency medical care (other than 
in a permanent medical-care facility); or
    (2) Transportation of persons in medical distress (or under 
emergency conditions) to medical-care facilities.
    As a general rule, the determination of the status of an individual 
as a rescue squad or ambulance crew member is based on whether that 
individual is trained to engage in rescue activity or to provide 
emergency medical services and whether that individual has legal 
authority and legal responsibility to engage in rescue activity or 
provide emergency medical services.
    Thus, an individual's job title is not determinative of his or her 
status as a public safety officer. Instead, the determination is made 
based on the facts and circumstances of the individual's employment, 
including their training, legal authority and legal responsibility. 
Example 3 has been modified and an Example 4 has been added to clarify 
this analysis using the criteria in the PSOB Regulations.

[[Page 27936]]

Moreover, these final regulations have not been amended to add 
additional job titles to the definition of public safety officer as 
suggested by commenters because an employee's job title is not 
determinative of their status as a public safety officer.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that these regulations will not have a significant economic 
impact on a substantial number of small entities. This certification is 
based upon the fact that these regulations do not require a collection 
of information and do not impose any new or different requirements on 
small entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, this notice 
of proposed rulemaking has been submitted to the Chief Council for 
Advocacy of the Small Business Administration for comment on its impact 
on small business.

Drafting Information

    The principal author of these regulations is Don M. Parkinson, 
Office of the Associate Chief Counsel (Tax Exempt and Government 
Entities). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

    Authority:  26 U.S.C. 7805 * * *


0
Par. 2. Section 1.132-5 paragraph (h) is revised to read as follows:


Sec.  1.132-5  Working condition fringes.

* * * * *
    (h) Qualified nonpersonal use vehicles--(1) In general. Except as 
provided in paragraph (h)(2) of this section, 100 percent of the value 
of the use of a qualified nonpersonal use vehicle (as described in 
Sec.  1.274-5(k)) is excluded from gross income as a working condition 
fringe, provided that, in the case of a vehicle described in Sec.  
1.274-5(k)(3) through (8), the use of the vehicle conforms to the 
requirements of paragraphs (k)(3) through (8).
    (2) Shared usage of qualified nonpersonal use vehicles. In general, 
a working condition fringe under this paragraph (h) is available to the 
driver and all passengers of a qualified nonpersonal use vehicle. 
However, a working condition fringe under this paragraph (h) is 
available only with respect to the driver and not with respect to any 
passengers of a qualified nonpersonal use vehicle described in Sec.  
1.274-5(k)(2)(ii)(L) or (P).
* * * * *

0
Par. 3. Section 1.274-5 paragraphs (k) and (l) and the last sentence of 
paragraph (m) are revised to read as follows:


Sec.  1.274-5  Substantiation requirements.

* * * * *
    (k) Exceptions for qualified nonpersonal use vehicles--(1) In 
general. The substantiation requirements of section 274(d) and this 
section do not apply to any qualified nonpersonal use vehicle (as 
defined in paragraph (k)(2) of this section).
    (2) Qualified nonpersonal use vehicle--(i) In general. For purposes 
of section 274(d) and this section, the term qualified nonpersonal use 
vehicle means any vehicle which, by reason of its nature (that is, 
design), is not likely to be used more than a de minimis amount for 
personal purposes.
    (ii) List of vehicles. Vehicles which are qualified nonpersonal use 
vehicles include the following:
    (A) Clearly marked police, fire, and public safety officer vehicles 
(as defined and to the extent provided in paragraph (k)(3) of this 
section).
    (B) Ambulances used as such or hearses used as such.
    (C) Any vehicle designed to carry cargo with a loaded gross vehicle 
weight over 14,000 pounds.
    (D) Bucket trucks (cherry pickers).
    (E) Cement mixers.
    (F) Combines.
    (G) Cranes and derricks.
    (H) Delivery trucks with seating only for the driver, or only for 
the driver plus a folding jump seat.
    (I) Dump trucks (including garbage trucks).
    (J) Flatbed trucks.
    (K) Forklifts.
    (L) Passenger buses used as such with a capacity of at least 20 
passengers.
    (M) Qualified moving vans (as defined in paragraph (k)(4) of this 
section).
    (N) Qualified specialized utility repair trucks (as defined in 
paragraph (k)(5) of this section).
    (O) Refrigerated trucks.
    (P) School buses (as defined in section 4221(d)(7)(c)).
    (Q) Tractors and other special purpose farm vehicles.
    (R) Unmarked vehicles used by law enforcement officers (as defined 
in paragraph (k)(6) of this section) if the use is officially 
authorized.
    (S) Such other vehicles as the Commissioner may designate.
    (3) Clearly marked police, fire, or public safety officer vehicles. 
A police, fire, or public safety officer vehicle is a vehicle, owned or 
leased by a governmental unit, or any agency or instrumentality 
thereof, that is required to be used for commuting by a police officer, 
fire fighter, or public safety officer (as defined in section 
402(l)(4)(C) of this chapter) who, when not on a regular shift, is on 
call at all times, provided that any personal use (other than 
commuting) of the vehicle outside the limit of the police officer's 
arrest powers or the fire fighter's or public safety officer's 
obligation to respond to an emergency is prohibited by such 
governmental unit. A police, fire, or public safety officer vehicle is 
clearly marked if, through painted insignia or words, it is readily 
apparent that the vehicle is a police, fire, or public safety officer 
vehicle. A marking on a license plate is not a clear marking for 
purposes of this paragraph (k).
    (4) Qualified moving van. The term qualified moving van means any 
truck or van used by a professional moving company in the trade or 
business of moving household or business goods if--
    (i) No personal use of the van is allowed other than for travel to 
and from a move site (or for de minimis personal use, such as a stop 
for lunch on the way between two move sites);
    (ii) Personal use for travel to and from a move site is an 
irregular practice (that is, not more than five times a month on 
average); and
    (iii) Personal use is limited to situations in which it is more 
convenient to the employer, because of the location of the employee's 
residence in relation to the location of the move site, for the van not 
to be returned to the employer's business location.
    (5) Qualified specialized utility repair truck. The term qualified 
specialized utility repair truck means any truck (not including a van 
or pickup truck)

[[Page 27937]]

specifically designed and used to carry heavy tools, testing equipment, 
or parts if--
    (i) The shelves, racks, or other permanent interior construction 
which has been installed to carry and store such heavy items is such 
that it is unlikely that the truck will be used more than a de minimis 
amount for personal purposes; and
    (ii) The employer requires the employee to drive the truck home in 
order to be able to respond in emergency situations for purposes of 
restoring or maintaining electricity, gas, telephone, water, sewer, or 
steam utility services.
    (6) Unmarked law enforcement vehicles--(i) In general. The 
substantiation requirements of section 274(d) and this section do not 
apply to officially authorized uses of an unmarked vehicle by a ``law 
enforcement officer''. To qualify for this exception, any personal use 
must be authorized by the Federal, State, county, or local governmental 
agency or department that owns or leases the vehicle and employs the 
officer, and must be incident to law-enforcement functions, such as 
being able to report directly from home to a stakeout or surveillance 
site, or to an emergency situation. Use of an unmarked vehicle for 
vacation or recreation trips cannot qualify as an authorized use.
    (ii) Law enforcement officer. The term law enforcement officer 
means an individual who is 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), who 
is authorized by law to carry firearms, execute search warrants, and to 
make arrests (other than merely a citizen's arrest), and who regularly 
carries firearms (except when it is not possible to do so because of 
the requirements of undercover work). The term ``law enforcement 
officer'' may include an arson investigator if the investigator 
otherwise meets the requirements of this paragraph (k)(6)(ii), but does 
not include Internal Revenue Service special agents.
    (7) Trucks and vans. The substantiation requirements of section 
274(d) and this section apply generally to any pickup truck or van, 
unless the truck or van has been specially modified with the result 
that it is not likely to be used more than a de minimis amount for 
personal purposes. For example, a van that has only a front bench for 
seating, in which permanent shelving that fills most of the cargo area 
has been installed, that constantly carries merchandise or equipment, 
and that has been specially painted with advertising or the company's 
name, is a vehicle not likely to be used more than a de minimis amount 
for personal purposes.
    (8) Examples. The following examples illustrate the provisions of 
paragraph (k)(3) and (6) of this section:

    Example 1.  Detective C, who is a ``law enforcement officer'' 
employed by a state police department, headquartered in City M, is 
provided with an unmarked vehicle (equipped with radio 
communication) for use during off-duty hours because C must be able 
to communicate with headquarters and be available for duty at any 
time (for example, to report to a surveillance or crime site). The 
police department generally has officially authorized personal use 
of the vehicle by C but has prohibited use of the vehicle for 
recreational purposes or for personal purposes outside the state. 
Thus, C's use of the vehicle for commuting between headquarters or a 
surveillance site and home and for personal errands is authorized 
personal use as described in paragraph (k)(6)(i) of this section. 
With respect to these authorized uses the vehicle is not subject to 
the substantiation requirements of section 274(d) and the value of 
these uses is not included in C's gross income.
    Example 2.  Detective T is a ``law enforcement officer'' 
employed by City M. T is authorized to make arrests only within M's 
city limits. T, along with all other officers of the force, is 
ordinarily on duty for eight hours each work day and on call during 
the other sixteen hours. T is provided with the use of a clearly 
marked police vehicle in which T is required to commute to his home 
in City M. The police department's official policy regarding marked 
police vehicles prohibits its personal use (other than commuting) of 
the vehicles outside the city limits. When not using the vehicle on 
the job, T uses the vehicle only for commuting, personal errands on 
the way between work and home, and personal errands within City M. 
All use of the vehicle by T conforms to the requirements of 
paragraph (k)(3) of this section. Therefore, the value of that use 
is excluded from T's gross income as a working condition fringe and 
the vehicle is not subject to the substantiation requirements of 
section 274(d).
    Example 3.  Director C is employed by City M as the director of 
the City's rescue squad and is provided with a vehicle for use in 
responding to emergencies. Director C is trained in rescue activity 
and has the legal authority and legal responsibility to engage in 
rescue activity. The city's rescue squad is not a part of City M's 
police or fire departments. The director's vehicle is a sedan which 
is painted with insignia and words identifying the vehicle as being 
owned by the City's rescue squad. C, when not on a regular shift, is 
on call at all times. The City's official policy regarding clearly 
marked public safety officer vehicles prohibits personal use (other 
than for commuting) of the vehicle outside of the limits of the 
public safety officer's obligation to respond to an emergency. When 
not using the vehicle to respond to emergencies, City M authorizes C 
to use the vehicle only for commuting, personal errands on the way 
between work and home, and personal errands within the limits of C's 
obligation to respond to emergencies. With respect to these 
authorized uses, the vehicle is not subject to the substantiation 
requirements of section 274(d) and the value of these uses is not 
includable in C's gross income.
    Example 4.  Coroner D is employed by County N to investigate and 
determine the cause, time, and manner of certain deaths occurring in 
the County. Coroner D also safeguards the property of the deceased, 
notifies the next of kin, conducts inquests, and arranges for the 
burial of indigent persons. D is provided with a vehicle for use by 
County N. The vehicle is to be used in County N business and for 
commuting. Personal use other than for commuting purposes is 
forbidden. D is trained in rescue activity but has no legal 
authority or legal responsibility to engage in rescue activity. D's 
vehicle is a sedan which is painted with insignia and words 
identifying it as a County N vehicle. D, when not on a regular 
shift, is on call at all times. D does not satisfy the criteria of a 
public safety officer under 28 CFR 32.3 (2008). Thus, D's vehicle 
cannot qualify as a clearly marked public safety officer vehicle. 
Accordingly, business use of the vehicle is subject to the 
substantiation requirements of section 274(d), and the value of any 
personal use of the vehicle, such as commuting, is includable in D's 
gross income.
    (l) Definitions. For purposes of section 274(d) and this section, 
the terms automobile and vehicle have the same meanings as prescribed 
in Sec.  1.61-21(d)(1)(ii) and (e)(2), respectively. Also, for purposes 
of section 274(d) and this section, the terms employer, employee and 
personal use have the same meanings as prescribed in Sec.  1.274-6T(e).
    (m) * * * However, paragraph (j)(3) of this section applies to 
expenses paid or incurred after September 30, 2002, and paragraph (k) 
applies to clearly marked public safety officer vehicles, as defined in 
Sec.  1.274-5(k)(3), only with respect to uses occurring after May 19, 
2010.

0
Par. 4. Section 1.274-5T is amended by revising paragraphs (k) and (l) 
to read as follows:


Sec.  1.274-5T  Substantiation requirements (temporary).

* * * * *
    (k) and (l) [Reserved]. For further guidance, see Sec.  1.274-5(k) 
and (l).
* * * * *

0
Par. 5. Section 1.280F-6 is amended by revising paragraph (b)(2)(ii) to 
read as follows:


Sec.  1.280F-6  Special rules and definitions.

* * * * *
    (b) * * *
    (2) * * *
    (ii) Exception. The term ``listed property'' does not include any 
vehicle

[[Page 27938]]

that is a qualified nonpersonal use vehicle as defined in section 
274(i) and Sec.  1.274-5(k).
* * * * *

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
    Approved: May 5, 2010.
Michael Mundaca,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2010-11767 Filed 5-18-10; 8:45 am]
BILLING CODE 4830-01-P