rp-09-54.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement;
determination of correct tax liability.
(Also Part I, §§ 62, 162, 170, 213, 217, 274, 1016; 1.62-2, 1.162-17, 1.170A-1, 1.213-1,
1.217-2, 1.274-5, 1.1016-3.)

Rev. Proc. 2009-54

SECTION 1. PURPOSE
This revenue procedure updates Rev. Proc. 2008-72, 2008-2 C.B. 1286, and
provides optional standard mileage rates for taxpayers to use in computing the
deductible costs of operating an automobile for business, charitable, medical, or moving
expense purposes. This revenue procedure also provides rules under which the
amount of ordinary and necessary expenses of local travel or transportation away from
home that are paid or incurred by an employee are deemed substantiated under
§ 1.274-5 of the Income Tax Regulations if a payor (an employer, its agent, or a third
party) provides a mileage allowance under a reimbursement or other expense
allowance arrangement. The substantiation methods described in this revenue
procedure are not mandatory. A taxpayer may use actual allowable expense amounts
to substantiate expenses if the taxpayer maintains adequate records or other sufficient

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evidence. The Internal Revenue Service prospectively adjusts the business and
medical and moving standard mileage rates annually (to the extent warranted).
SECTION 2. SUMMARY OF STANDARD MILEAGE RATES
.01 Standard mileage rates
(1) Business (section 5 below) 50 cents per mile
(2) Charitable contribution (section 7 below) 14 cents per mile
(3) Medical and moving (section 7 below) 16.5 cents per mile
.02 Determination of standard mileage rates. An independent contractor on behalf of
the Service conducts an annual study of the fixed and variable costs of operating an
automobile to determine the business and medical and moving standard mileage rates
reflected in this revenue procedure. The charitable contribution standard mileage rate is
set by § 170(i) of the Internal Revenue Code.
SECTION 3. BACKGROUND AND CHANGES
.01 Under § 162(a), a taxpayer may deduct the ordinary and necessary expenses the
taxpayer pays or incurs during the taxable year in carrying on any trade or business. An
employee or self-employed individual may deduct the cost of operating an automobile to
the extent that it is used in a trade or business. Under § 262, a taxpayer may not
deduct any portion of the cost of operating an automobile attributable to personal use.
.02 Section 274(d) provides, in part, that a taxpayer may not deduct expenses for
travel or listed property unless the taxpayer complies with certain substantiation
requirements. Under § 280F(d)(4), listed property includes passenger automobiles and
any other property used as a means of transportation.
.03 Under § 1.274-5(g) and (j), the Commissioner may prescribe rules and establish

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methods for taxpayers to use mileage rates and allowances to substantiate the amount
of ordinary and necessary expenses of using a vehicle for local transportation and
transportation while traveling away from home. Under these rules, mileage allowances
that comply with reasonable business practice are treated as (1) equivalent to
substantiation, by adequate records or other sufficient evidence, of the amount of
transportation expenses for purposes of § 1.274-5(c), and (2) satisfying the
requirements of an adequate accounting to the employer of the amount of the expenses
for purposes of § 1.274-5(f).
.04 Section 62(a)(2)(A) allows an employee, in determining adjusted gross income, a
deduction for the expenses allowed by Part VI (§ 161 and following), subchapter B,
chapter 1 of the Code, the employee pays or incurs in performing services as an
employee under a reimbursement or other expense allowance arrangement with a
payor.
.05 Section 62(c) provides that an arrangement is not treated as a reimbursement or
other expense allowance arrangement for purposes of § 62(a)(2)(A) if it--
(1) Does not require the employee to substantiate the expenses to the payor, or
(2) Allows the employee to retain any amount in excess of the substantiated
expenses.
The substantiation requirements described in § 62(c) do not apply to an expense to the
extent that the Commissioner provides that substantiation is not required.
.06 Under § 1.62-2(c), a reimbursement or other expense allowance arrangement
satisfies the requirements of § 62(c) if it meets the requirements of business connection,
substantiation, and returning amounts in excess of expenses as specified in the

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regulations. If an arrangement meets these requirements, all amounts paid under the
arrangement are treated as paid under an accountable plan and are excluded from
income and wages. If an arrangement does not meet one or more of these
requirements, all amounts paid under the arrangement are treated as paid under a
nonaccountable plan and are included in the employee's gross income, must be
reported as wages or compensation on the employee's Form W-2, and are subject to
the withholding and payment of employment taxes. Section 1.62-2(e)(2) provides that
substantiation of certain business expenses in accordance with rules prescribed under §
1.274-5(g) are treated as substantiation of the amount of the expenses for purposes of
§ 1.62-2. Under § 1.62-2(f)(2), the Commissioner may prescribe rules under which an
arrangement providing mileage allowances is treated as satisfying the requirement of
returning amounts in excess of expenses, even though the employee is not required to
return the portion of the allowance for miles of travel substantiated, if the allowance is
reasonably calculated not to exceed the amount of the employee's expenses and the
employee is required to return the portion of the allowance for miles of travel not
substantiated.
.07 Section 1.62-2(h)(2)(i)(B) provides that if a payor pays a mileage allowance
under an arrangement that meets the requirements of § 1.62-2(c)(1), the portion, if any,
of the allowance that relates to miles of travel substantiated in accordance with § 1.62-
2(e), that exceeds the amount of the employee's expenses deemed substantiated for
the travel pursuant to rules prescribed under § 274(d) and § 1.274-5(g), and that the
employee is not required to return, is subject to withholding and payment of employment
taxes. See §§ 31.3121(a)-3, 31.3231(e)-1(a)(5), 31.3306(b)-2, and 31.3401(a)-4 of the

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Employment Tax Regulations.
.08 This revenue procedure includes modifications to Rev. Proc. 2008-72 as follows:
(1) Section 5.01 contains revisions to the business standard mileage rate.
(2) Section 7.02 contains revisions to the medical and moving standard mileage
rate.
SECTION 4. DEFINITIONS
.01 Standard mileage rate. The term "standard mileage rate" means the amount the
Service provides for optional use by taxpayers to substantiate the amount of--
(1) Deductible costs of operating for business purposes automobiles (including
vans, pickups, or panel trucks) they own or lease, or
(2) Deductible costs of operating automobiles for charitable, medical, or moving
expense purposes.
.02 Transportation expenses. The term "transportation expenses" means the
expenses of operating an automobile for local transportation or transportation away
from home.
.03 Mileage allowance. The term "mileage allowance" means a payment under a
reimbursement or other expense allowance arrangement that is--
(1) Paid for the ordinary and necessary business expenses incurred, or that the
payor reasonably anticipates will be incurred, by an employee for transportation
expenses in performing services as an employee of the employer,
(2) Reasonably calculated not to exceed the amount of the expenses or the
anticipated expenses, and
(3) Paid at the applicable standard mileage rate, a flat rate or stated schedule, or

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in accordance with any other Service-specified rate or schedule.
.04 Flat rate or stated schedule. A mileage allowance is paid at a flat rate or stated
schedule if it is paid on a uniform and objective basis for the expenses described in
section 4.03 of this revenue procedure. The allowance may be paid periodically at a
fixed rate, at a cents-per-mile rate, at a variable rate based on a stated schedule, at a
rate that combines any of these rates, or on any other basis that is consistently applied
and accords with reasonable business practice. Thus, for example, a periodic payment
at a fixed rate to cover the fixed costs (including depreciation or lease payments,
insurance, registration and license fees, and personal property taxes) of driving an
automobile in performing services as an employee of the employer, coupled with a
periodic payment at a cents-per-mile rate to cover the variable costs (including gasoline
and all taxes thereon, oil, tires, and routine maintenance and repairs) of using an
automobile for those purposes, is an allowance paid at a flat rate or stated schedule.
Likewise, a periodic payment at a variable rate based on a stated schedule for different
locales to cover the costs of driving an automobile in performing services as an
employee is an allowance paid at a flat rate or stated schedule.
.05 Lease period. The term “lease period” includes renewal periods.
SECTION 5. BUSINESS STANDARD MILEAGE RATE
.01 In general. The standard mileage rate for transportation expenses is 50 cents
per mile for all miles of business use.
.02 Use of the business standard mileage rate. A taxpayer may use the business
standard mileage rate for an automobile that a taxpayer either owns or leases. A
taxpayer generally may deduct an amount equal to either the business standard

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mileage rate times the number of business miles traveled or the actual costs (both fixed
and variable) the taxpayer pays or incurs that are allocable to traveling those business
miles.
.03 Business standard mileage rate in lieu of fixed and variable costs. A taxpayer
computes a deduction using the business standard mileage rate on a yearly basis and
in lieu of computing the fixed and variable costs of the automobile allocable to business
purposes (except as provided in section 9.06 of this revenue procedure). Items such as
depreciation or lease payments, maintenance and repairs, tires, gasoline (including all
taxes thereon), oil, insurance, and license and registration fees are included in fixed and
variable costs for this purpose.
.04 Parking fees, tolls, interest, and taxes. A taxpayer may deduct, as separate
items, parking fees and tolls attributable to use of the automobile for business purposes.
A taxpayer also may deduct interest relating to the purchase of the automobile and
state and local personal property taxes as separate items to the extent allowable under
§ 163 or § 164, respectively. Under § 163(h)(2)(A), interest is nondeductible personal
interest if it is paid or incurred on indebtedness properly allocable to the trade or
business of performing services as an employee. Section 164 provides that state and
local taxes a taxpayer pays or incurs in connection with an acquisition or disposition of
property are treated as part of the cost of the acquired property or as a reduction in the
amount realized on the disposition of the property. If the automobile is operated less
than 100 percent for business purposes, a taxpayer must allocate the business and
nonbusiness portion of the allowable taxes and interest deduction.
.05 Depreciation. For automobiles a taxpayer owns and has placed in service for

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business purposes, and for which the taxpayer used the business standard mileage rate
for any year, 16 cents per mile is treated as depreciation for 2003 and 2004, 17 cents
per mile for 2005 and 2006, 19 cents per mile for 2007, 21 cents per mile for 2008 and
2009, and 23 cents per mile for 2010 for those years in which the taxpayer used
business standard mileage rate. If the taxpayer used actual costs for one or more of
those years, these rates do not apply to any year in which the taxpayer used actual
costs. The depreciation described above reduces the basis of the automobile (but not
below zero) in determining adjusted basis as required by § 1016.
.06 Limitations.
(1) A taxpayer may not use the business standard mileage rate to compute the
deductible expenses of (a) automobiles used for hire, such as taxicabs, or (b) five or
more automobiles owned or leased by a taxpayer and used simultaneously (such as in
fleet operations).
(2) A taxpayer may not use the business standard mileage rate to compute the
deductible business expenses of an automobile a taxpayer leases unless the taxpayer
uses either the business standard mileage rate or a fixed and variable rate allowance
(FAVR allowance) (as provided in section 8 of this revenue procedure) to compute the
deductible business expenses of the automobile for the lease period.
(3) A taxpayer may not use the business standard mileage rate to compute the
deductible expenses of an automobile for which the taxpayer has (a) claimed
depreciation using a method other than straight-line for its estimated useful life, (b)
claimed a § 179 deduction, (c) claimed the additional first-year depreciation allowance
under, for example, § 168(k) or § 168(n), or (d) used the Accelerated Cost Recovery

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System (ACRS) under former § 168 or the Modified Accelerated Cost Recovery System
(MACRS) under current § 168. By using the business standard mileage rate, the
taxpayer has elected to exclude the automobile (if owned) from MACRS pursuant to
§ 168(f)(1). If, after using the business standard mileage rate, the taxpayer uses actual
costs, the taxpayer must use straight-line depreciation for the automobile's remaining
estimated useful life (subject to the applicable depreciation deduction limitations under
§ 280F).
(4) A taxpayer who is an employee of the United States Postal Service may not
use the business standard mileage rate and this revenue procedure to compute the
amount of the taxpayer’s deductible automobile expenses incurred in performing
services involving the collection and delivery of mail on a rural route if the taxpayer
receives qualified reimbursements (as defined in § 162(o)) for the expenses. See
§ 162(o) for the rules that apply to these qualified reimbursements.
SECTION 6. RESERVED
SECTION 7. CHARITABLE AND MEDICAL AND MOVING STANDARD MILEAGE
RATES
.01 Charitable. Section 170(i) provides a standard mileage rate of 14 cents per mile
for purposes of computing the charitable contribution deduction for use of an automobile
in rendering gratuitous services to a charitable organization under § 170.
.02 Medical and moving. The standard mileage rate is 16.5 cents per mile for use of
an automobile (1) to obtain medical care described in § 213, or (2) as part of a move for
which the expenses are deductible under § 217.
.03 Charitable or medical and moving standard mileage rates in lieu of variable

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expenses. A deduction computed using the applicable standard mileage rate for
charitable, medical, or moving expense miles is in lieu of all variable expenses
(including gasoline and oil) of the automobile allocable to those purposes. Costs for
items such as depreciation or lease payments, insurance, and license and registration
fees are not deductible, and are not included in the charitable or medical and moving
standard mileage rates.
.04 Parking fees, tolls, interest, and taxes. A taxpayer may deduct, as separate
items, parking fees and tolls attributable to the use of the automobile for charitable,
medical, or moving expense purposes. Interest relating to the purchase of the
automobile and state and local personal property taxes are not deductible as charitable,
medical, or moving expenses, but they may be deducted as separate items to the extent
allowable under § 163 or § 164, respectively.
SECTION 8. FIXED AND VARIABLE RATE ALLOWANCE
.01 In general.
(1) The ordinary and necessary expenses an employee pays or incurs in driving
an automobile the employee owns or leases in performing services as an employee of
the employer are deemed substantiated (in an amount determined under section 9 of
this revenue procedure) when a payor reimburses those expenses using a FAVR
allowance. A FAVR allowance is a mileage allowance using a flat rate or stated
schedule that combines periodic fixed and variable rate payments that meet all the
requirements of this section 8.
(2) A payor must base the amount of a FAVR allowance on data that (a) is
derived from the base locality, (b) reflects retail prices paid by consumers, and (c) is

11
reasonable and statistically defensible in approximating the actual expenses employees
receiving the allowance would incur as owners of the standard automobile.
.02 Computation of FAVR allowance.
(1) FAVR allowance. A FAVR allowance includes periodic fixed payments and
periodic variable payments. A payor may maintain more than one FAVR allowance. A
FAVR allowance that uses the same payor, standard automobile (or an automobile of
the same make and model that is comparably equipped), retention period, and business
use percentage is considered one FAVR allowance, even though other features of the
allowance may vary. A FAVR allowance also includes any optional high mileage
payments. However, optional high mileage payments are included in the employee's
gross income, are reported as wages or other compensation on the employee's Form
W-2, and are subject to withholding and payment of employment taxes when paid. See
section 9.05 of this revenue procedure. An optional high mileage payment covers the
additional depreciation for a standard automobile attributable to business miles driven
and substantiated by the employee for a calendar year in excess of the annual business
mileage for that year. If an employee is covered by the FAVR allowance for less than
the entire calendar year, the annual business mileage may be prorated on a monthly
basis for purposes of the preceding sentence.
(2) Periodic fixed payment. A periodic fixed payment covers the projected fixed
costs (including depreciation or lease payments, insurance, registration and license
fees, and personal property taxes) of driving the standard automobile in performing
services as an employee of the employer in a base locality, and must be paid at least
quarterly. A payor may compute a periodic fixed payment by (a) dividing the total

12
projected fixed costs of the standard automobile for all years of the retention period,
determined at the beginning of the retention period, by the number of periodic fixed
payments in the retention period, and (b) multiplying the resulting amount by the
business use percentage.
(3) Periodic variable payment. A periodic variable payment covers the projected
variable costs (including gasoline and all taxes thereon, oil, tires, and routine
maintenance and repairs) of driving a standard automobile in performing services as an
employee of the employer in a base locality, and must be paid at least quarterly. A
payor may compute a periodic variable payment rate for a computation period by
dividing the total projected variable costs for the standard automobile for the
computation period, determined at the beginning of the computation period, by the
computation period mileage. A computation period may be any period of a year or less.
Computation period mileage is the total mileage (business and personal) a payor
reasonably projects a standard automobile will be driven during a computation period
and equals the retention mileage divided by the number of computation periods in the
retention period. For each business mile an employee substantiates for the
computation period, a payor must make a periodic variable payment at a rate that does
not exceed the rate for that computation period.
(4) Base locality. A base locality is the particular geographic locality or region of
the United States in which an employee generally pays or incurs the costs of driving an
automobile in performing services as an employee of the employer. Thus, for purposes
of determining the amount of fixed costs, the base locality is generally the geographic
locality or region in which the employee resides. For purposes of determining the

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amount of variable costs, the base locality is generally the geographic locality or region
in which the employee drives the automobile in performing services as an employee of
the employer.
(5) Standard automobile. A standard automobile is the automobile a payor
selects on which a specific FAVR allowance is based.
(6) Standard automobile cost. The standard automobile cost for a calendar year
may not exceed 95 percent of the sum of (a) the retail dealer invoice cost of the
standard automobile in the base locality, and (b) state and local sales or use taxes on
the purchase of the automobile. The standard automobile cost may not exceed
$27,300.
(7) Annual mileage. Annual mileage is the total mileage (business and personal)
a payor reasonably projects an employee will drive a standard automobile during a
calendar year. Annual mileage equals the annual business mileage divided by the
business use percentage.
(8) Annual business mileage. Annual business mileage is the mileage a payor
reasonably projects an employee will drive a standard automobile in performing
services as an employee of the employer during the calendar year, but may not be less
than 6,250 miles for a calendar year. Annual business mileage equals the annual
mileage multiplied by the business use percentage.
(9) Business use percentage. A payor determines the business use percentage
by dividing the annual business mileage by the annual mileage. The business use
percentage may not exceed 75 percent. In lieu of demonstrating the reasonableness of
the business use percentage based on records of total mileage and business mileage

14
driven by employees annually, a payor may use a business use percentage that is less
than or equal to the following percentages for a FAVR allowance that is paid for the
following annual business mileage:
Annual business mileage Business use percentage
6,250 or more but less than 10,000 45 percent
10,000 or more but less than 15,000 55 percent
15,000 or more but less than 20,000 65 percent
20,000 or more 75 percent
(10) Retention period. A retention period is the period in calendar years a payor
selects during which the payor expects an employee to drive a standard automobile in
performing services as an employee of the employer before the automobile is replaced.
The period may not be less than two calendar years.
(11) Retention mileage. Retention mileage is the annual mileage multiplied by
the number of calendar years in the retention period.
(12) Residual value. The residual value of a standard automobile is the projected
amount for which it could be sold at the end of the retention period after being driven the
retention mileage. The Service will accept the following safe harbor residual values for
a standard automobile computed as a percentage of the standard automobile cost:
Retention period Residual value
2 years 70 percent
3 years 60 percent
4 years 50 percent
.03 FAVR allowance in lieu of fixed and variable costs.

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(1) A reimbursement computed using a FAVR allowance is in lieu of the
employee's deduction of all the fixed and variable costs the employee pays or incurs in
driving the automobile in performing services as an employee of the employer, except
as provided in section 9.06 of this revenue procedure. Items such as depreciation or
lease payments, maintenance and repairs, tires, gasoline (including all taxes thereon),
oil, insurance, license and registration fees, and personal property taxes are included in
fixed and variable costs for this purpose.
(2) An employee may deduct, as separate items, parking fees and tolls
attributable to the employee driving the standard automobile in performing services as
an employee of the employer. Similarly, an employee may deduct, as a separate item,
interest relating to the purchase of the standard automobile to the extent that the
interest is an allowable deduction under § 163.
.04 Depreciation.
(1) A payor may not provide a FAVR allowance for an automobile for which an
employee has (a) claimed depreciation using a method other than straight-line for its
estimated useful life, (b) claimed a § 179 deduction, (c) claimed the additional first-year
depreciation allowance under, for example, § 168(k) or § 168(n), or (d) used ACRS
under former § 168 or MACRS under current § 168. If an employee uses actual costs
for an owned automobile that has been covered by a FAVR allowance, the employee
must use straight-line depreciation for the automobile's remaining estimated useful life
(subject to the applicable depreciation deduction limitations under § 280F).
(2) Except as provided in section 8.04(3) of this revenue procedure, the total
amount of the depreciation component for the retention period a payor includes in

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computing the periodic fixed payments for that retention period may not exceed the
excess of the standard automobile cost over the residual value of the standard
automobile. In addition, the total amount of the depreciation component may not
exceed the sum of the annual § 280F limitations on depreciation in effect at the
beginning of the retention period that apply to the standard automobile during the
retention period.
(3) If the depreciation component of periodic fixed payments exceeds the
limitations in section 8.04(2) of this revenue procedure, the Service will treat that section
as satisfied if the total annual amount of the FAVR (periodic fixed and variable)
payments a payor makes to an employee driving 80 percent of the annual business
mileage of the standard automobile does not exceed the business standard mileage
rate for that year (under section 5.01 of the applicable revenue procedure) multiplied by
80 percent of the annual business mileage of the standard automobile.
(4) The depreciation included in each periodic fixed payment portion of a FAVR
allowance paid with respect to an automobile reduces the basis of the automobile (but
not below zero) in determining adjusted basis as required by § 1016. See section
8.07(2) of this revenue procedure for the requirement that the employer report the
depreciation component of a periodic fixed payment to the employee.
.05 FAVR allowance limitations.
(1) A payor may provide a FAVR allowance only to an employee who
substantiates to the payor for a calendar year at least 5,000 miles driven in performing
services as an employee of the employer or, if greater, 80 percent of the annual
business mileage of that FAVR allowance. If the employee is covered by the FAVR

17
allowance for less than the entire calendar year, the payor may prorate these limits on a
monthly basis.
(2) A payor may not provide a FAVR allowance to a control employee (as defined
in § 1.61-21(f)(5) and (6), excluding the $100,000 limitation in paragraph (f)(5)(iii)).
(3) A payor may not provide a FAVR allowance if at any time during a calendar
year a majority of the employees the FAVR allowance covers are management
employees.
(4) A payor may not provide a FAVR allowance to any employee unless at all
times during a calendar year FAVR allowances provided by the payor cover at least five
employees in total.
(5) A payor may provide a FAVR allowance only for an automobile (a) the
employee receiving the payment owns or leases, (b) the cost of which, as a new vehicle
(whether or not purchased new by the employee), was at least 90 percent of the
standard automobile cost included in determining the FAVR allowance for the first
calendar year the employee receives the allowance for that automobile, and (c) for
which the model year does not differ from the current calendar year by more than the
number of years in the retention period.
(6) A payor may not provide a FAVR allowance for an automobile an employee
leases for which the employee has used actual expenses to compute the deductible
business expenses of the automobile for any year during the lease period.
(7) The insurance cost component of a FAVR allowance must be based on the
rates charged in the base locality for insurance coverage on the standard automobile
during the current calendar year without considering rate-increasing factors such as

18
poor driving records or young drivers.
(8) A payor may provide a FAVR allowance only to an employee whose insurance
coverage limits on the automobile for which the FAVR allowance is paid are at least
equal to the insurance coverage limits used to compute the periodic fixed payment
under that FAVR allowance.
.06 Employee reporting. Within 30 days after a FAVR allowance initially covers an
employee's automobile, or again covers the automobile if coverage has lapsed, the
employee by written declaration must provide the payor with the following information:
(1) the make, model, and year of the employee's automobile, (2) written proof of the
insurance coverage limits on the automobile, (3) the odometer reading of the
automobile, (4) if owned, the purchase price of the automobile or, if leased, the price at
which the automobile is ordinarily sold by retailers (the gross capitalized cost of the
automobile), and (5) if owned, whether the employee has claimed depreciation for the
automobile using any of the depreciation methods prohibited by section 8.04(1) of this
revenue procedure or, if leased, whether the employee has computed deductible
business expenses for the automobile using actual expenses. The employee must
provide the information in (1), (2), and (3) to the payor within 30 days after the beginning
of each calendar year that a FAVR allowance covers the employee's automobile.
.07 Payor recordkeeping and reporting.
(1) The payor or its agent must maintain written records stating (a) the statistical
data and projections on which the FAVR allowance payments are based, and (b) the
information the employees provided under section 8.06 of this revenue procedure.
(2) Within 30 days of the end of each calendar year, the payor must provide each

19
employee covered by a FAVR allowance during that year with a statement that lists the
amount of depreciation included in each periodic fixed payment portion of the FAVR
allowance paid during that calendar year to an automobile owner and explains that by
receiving a FAVR allowance the employee has elected to exclude the automobile from
the Modified Accelerated Cost Recovery System under § 168(f)(1). For automobile
lessees, the statement must explain that by receiving the FAVR allowance the
employee may not compute the deductible business expenses of the automobile using
actual expenses for the lease period.
.08 Failure to meet section 8 requirements. If an employee receives a mileage
allowance that fails to meet one or more of the requirements of this section 8, the
employee may not be treated as covered by any FAVR allowance of the payor during
the period of the failure. Nevertheless, the expenses to which that mileage allowance
relates may be deemed substantiated using the method described in sections 5,
9.01(1), and 9.02 of this revenue procedure to the extent the requirements of those
sections are met.
SECTION 9. APPLICATION
.01 If a payor pays a mileage allowance in lieu of reimbursing actual transportation
expenses an employee incurs or may incur, the amount of the expenses that is deemed
substantiated to the payor is either:
(1) For any mileage allowance other than a FAVR allowance, the lesser of the
amount paid under the mileage allowance or the applicable standard mileage rate in
section 5.01 of this revenue procedure multiplied by the number of business miles the
employee substantiates; or

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(2) For a FAVR allowance, the amount paid under the FAVR allowance less the
sum of (a) any periodic variable rate payment that relates to miles in excess of the
business miles the employee substantiates and that the employee fails to return to the
payor although required to do so, (b) any portion of a periodic fixed payment that relates
to a period during which the employee is treated as not covered by the FAVR allowance
and that the employee fails to return to the payor although required to do so, and (c) any
optional high mileage payments.
.02 If the amount of transportation expenses is deemed substantiated under the
rules provided in section 9.01 of this revenue procedure, and the employee actually
substantiates to the payor the elements of time, place (or use), and business purpose of
the transportation expenses in accordance with paragraphs (b)(2) (travel away from
home) and (b)(6) (listed property, which includes passenger automobiles and any other
property used as a means of transportation) of § 1.274-5T, and paragraph (c) of
§ 1.274-5, the employee is deemed to satisfy the adequate accounting requirements of
§ 1.274-5(f) as well as the requirement to substantiate by adequate records or other
sufficient evidence for purposes of § 1.274-5(c).
.03 An arrangement providing mileage allowances will be treated as satisfying the
requirement of § 1.62-2(f)(2) on returning amounts in excess of expenses as follows:
(1) For a mileage allowance (other than a FAVR allowance) paid only at a cents-
per-mile rate, the requirement to return excess amounts is treated as satisfied if the
employee is required to return within a reasonable period of time (as defined in § 1.62-
2(g)) any portion of the allowance that relates to miles of travel not substantiated by the
employee, even though the arrangement does not require the employee to return the

21
portion of the allowance that relates to the miles of travel substantiated and that
exceeds the amount of the employee's expenses deemed substantiated. For example,
assume a payor provides an employee an advance mileage allowance of $120.00
based on an anticipated 200 business miles at 60 cents per mile (at a time when the
business standard mileage rate is 50 cents per mile), and the employee substantiates
120 business miles. The requirement to return excess amounts is treated as satisfied if
the employee is required to return the portion of the allowance that relates to the 80
unsubstantiated business miles ($40.00) even though the employee is not required to
return the portion of the allowance ($12.00) that exceeds the amount of the employee's
expenses deemed substantiated under section 9.01 of this revenue procedure ($60.00)
for the 120 substantiated business miles. However, the $12.00 excess portion of the
allowance is treated as paid under a nonaccountable plan as discussed in section 9.05.
(2) For a mileage allowance (other than a FAVR allowance) paid other than only
at a cents-per-mile rate, the requirement to return excess amounts is treated as
satisfied if the employee is required to return within a reasonable period of time (as
defined in § 1.62-2(g)) any portion of the allowance that exceeds the product of the
standard mileage rate and the number of miles of travel the employee substantiates.
For example, assume a payor provides an employee an advance mileage allowance of
$400 per month plus 20 cents per mile based on an anticipated 2000 miles for a total of
$800 (at a time when the business standard mileage rate is 50 cents per mile), and the
employee substantiates 1000 business miles. The requirement to return excess
amounts is treated as satisfied if the employee is required to return $300, the portion of
the allowance that exceeds the product of the standard mileage rate and the miles

22
substantiated ($500).
(3) For a FAVR allowance, the requirement to return excess amounts is treated
as satisfied if the employee is required to return, within a reasonable period of time (as
defined in § 1.62-2(g)), (a) the portion (if any) of the periodic variable payment received
that relates to miles in excess of the business miles the employee substantiates, and (b)
the portion (if any) of a periodic fixed payment that relates to a period during which the
employee was not covered by the FAVR allowance.
.04 An employee is not required to include in gross income the portion of a mileage
allowance received from a payor that is less than or equal to the amount deemed
substantiated under section 9.01 of this revenue procedure, provided the employee
substantiates in accordance with section 9.02. See § 1.274-5T(f)(2)(i). Assuming that
the remaining requirements for an accountable plan provided in § 1.62-2 are satisfied,
that portion of the allowance is treated as paid under an accountable plan, is not
reported as wages or other compensation on the employee's Form W-2, and is exempt
from withholding and payment of employment taxes. See § 1.62-2(c)(2) and (c)(4).
.05 An employee is required to include in gross income the portion of a mileage
allowance received from a payor that exceeds the amount deemed substantiated under
section 9.01 of this revenue procedure. See § 1.274-5T(f)(2)(ii). In addition, the excess
portion of the allowance is treated as paid under a nonaccountable plan, is reported as
wages or other compensation on the employee's Form W-2, and is subject to
withholding and payment of employment taxes. See § 1.62-2(c)(3)(ii), (c)(5), and
(h)(2)(i)(B).
.06 If an employee’s substantiated expenses are less than the employee's actual

23
expenses, the following rules apply:
(1) Except as otherwise provided in section 9.06(2) of this revenue procedure on
leased automobiles, if the amount of the expenses deemed substantiated under the
rules provided in section 9.01 of this revenue procedure is less than the amount of the
employee's business transportation expenses, the employee may claim an itemized
deduction for the amount by which the business transportation expenses exceed the
amount that is deemed substantiated, provided the employee substantiates all the
business transportation expenses (not just the excess over the business standard
mileage rate), includes on Form 2106, Employee Business Expenses, the deemed
substantiated portion of the mileage allowance received from the payor, and includes in
gross income the portion (if any) of the mileage allowance received from the payor that
exceeds the amount deemed substantiated. See § 1.274-5T(f)(2)(iii). However, for
purposes of claiming this itemized deduction, the employee is not required to
substantiate the amount of the expenses if the employee is claiming a deduction that is
equal to or less than the applicable standard mileage rate multiplied by the number of
business miles the employee substantiated minus the amount deemed substantiated
under section 9.01 of this revenue procedure. The itemized deduction is subject to the
2-percent floor on miscellaneous itemized deductions in § 67.
(2) An employee whose business transportation expenses for a leased
automobile are deemed substantiated under section 9.01(1) of this revenue procedure
(relating to an allowance other than a FAVR allowance) may not claim a deduction
based on actual expenses under section 9.06(1) unless the employee does so
consistently beginning with the first business use of the automobile after December 31,

24
1997. An employee whose business transportation expenses for a leased automobile
are deemed substantiated under section 9.01(2) of this revenue procedure (relating to a
FAVR allowance) may not claim a deduction based on actual expenses.
.07 An employee may deduct an amount computed under section 5.01 of this
revenue procedure only as an itemized deduction. This itemized deduction is subject to
the 2-percent floor on miscellaneous itemized deductions in § 67.
.08 A self-employed individual may deduct an amount computed under section 5.01
of this revenue procedure in determining adjusted gross income under § 62(a)(1).
SECTION 10. WITHHOLDING AND PAYMENT OF EMPLOYMENT TAXES
.01 The portion of a mileage allowance (other than a FAVR allowance), if any, that
relates to the miles of business travel substantiated and that exceeds the amount
deemed substantiated for those miles under section 9.01(1) of this revenue procedure is
treated as paid under a nonaccountable plan and is subject to withholding and payment
of employment taxes. See § 1.62-2(h)(2)(i)(B).
(1) In the case of a mileage allowance paid as a reimbursement, the excess
described in section 10.01 of this revenue procedure is subject to withholding and
payment of employment taxes in the payroll period in which a payor reimburses the
expenses for the business miles substantiated. See § 1.62-2(h)(2)(i)(B)(2).
(2) In the case of a mileage allowance paid as an advance, the excess described
in section 10.01 of this revenue procedure is subject to withholding and payment of
employment taxes no later than the first payroll period following the payroll period in
which the business miles for which the advance was paid are substantiated. See
§ 1.62-2(h)(2)(i)(B)(3). If some or all of the business miles for which the advance was

25
paid are not substantiated within a reasonable period of time and the employee does
not return the portion of the allowance that relates to those miles within a reasonable
period of time, the portion of the allowance that relates to those miles is subject to
withholding and payment of employment taxes no later than the first payroll period
following the end of the reasonable period. See § 1.62-2(h)(2)(i)(A).
(3) In the case of a mileage allowance that is not computed on the basis of a fixed
amount per mile of travel (for example, a mileage allowance that combines periodic
fixed and variable rate payments, but that does not satisfy the requirements of section 8
of this revenue procedure), the payor must compute periodically (no less frequently than
quarterly) the amount, if any, that exceeds the amount deemed substantiated under
section 9.01(1) of this revenue procedure by comparing the total mileage allowance
paid for the period to the standard mileage rate in section 5.01 of this revenue
procedure multiplied by the number of business miles the employee substantiated for
the period. Any excess is subject to withholding and payment of employment taxes no
later than the first payroll period following the payroll period in which the excess is
computed. See § 1.62-2(h)(2)(i)(B)(4).
(4) For example, assume a payor provides employees a mileage allowance under
an arrangement that otherwise meets the requirements of an accountable plan at a rate
of 60 cents per mile (when the business standard mileage rate is 50 cents per mile).
The payor does not require the return of the portion of the allowance that exceeds the
business standard mileage rate for the business miles substantiated (10 cents). In
June, the payor advances an employee $300.00 for 500 miles to be traveled during the
month. In July, the employee substantiates to the payor 400 business miles traveled in

26
June and returns $60.00 to the payor for the 100 business miles not traveled. The
amount deemed substantiated for the 400 miles traveled is $200.00 and the employee
is not required to return $40.00. No later than the first payroll period following the
payroll period in which the 400 business miles traveled are substantiated, the payor
must withhold and pay employment taxes on $40.00.
.02 The portion of a FAVR allowance, if any, that exceeds the amount deemed
substantiated for those miles under section 9.01(2) of this revenue procedure is subject
to withholding and payment of employment taxes. See § 1.62-2(h)(2)(i)(B).
(1) Any periodic variable rate payment that relates to miles in excess of the
business miles an employee substantiates and that the employee fails to return within a
reasonable period, or any portion of a periodic fixed payment that relates to a period
during which the employee is treated as not covered by the FAVR allowance and that
the employee fails to return within a reasonable period, is subject to withholding and
payment of employment taxes no later than the first payroll period following the end of
the reasonable period. See § 1.62-2(h)(2)(i)(A).
(2) Any optional high mileage payment is subject to withholding and payment of
employment taxes when paid.
.03 All payments to an employee under a mileage allowance are treated as paid
under a nonaccountable plan if the arrangement evidences a pattern of abuse. An
arrangement evidences a pattern of abuse if, for example, it has no process to
determine when an allowance exceeds the amount that may be deemed substantiated
and the arrangement routinely pays allowances in excess of the amount that may be
deemed substantiated without (1) requiring actual substantiation or repayment of the

27
excess amount, or (2) treating the excess allowances as wages for employment tax
purposes. See § 62(c), § 1.62-2(k), and Rev. Rul. 2006-56, 206-2 C.B. 874. Thus,
these payments are included in the employee’s gross income, are reported as wages or
other compensation on the employee’s Form W-2, and are subject to withholding and
payment of employment taxes. See §§ 1.62-2(c)(3), (c)(5), and (h)(2).
SECTION 11. EFFECTIVE DATE
This revenue procedure is effective for (1) deductible transportation expenses paid
or incurred on or after January 1, 2010, and (2) mileage allowances or reimbursements
paid to an employee or to a charitable volunteer (a) on or after January 1, 2010, and (b)
for transportation expenses the employee or charitable volunteer pays or incurs on or
after January 1, 2010.
SECTION 12. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2008-72 is superseded.
DRAFTING INFORMATION
The principal author of this revenue procedure is Bernard P. Harvey of the Office of
Associate Chief Counsel (Income Tax and Accounting). For further information
regarding this revenue procedure, contact Mr. Harvey at (202) 622-4930 (not a toll-free
call).