rp-10-51.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. 2010-51

SECTION 1. PURPOSE
This revenue procedure updates Rev. Proc. 2009-54, 2009-51 I.R.B. 930, and
provides rules for using optional standard mileage rates in computing the deductible
costs of operating an automobile for business, charitable, medical, or moving expense
purposes. This revenue procedure also provides rules for substantiating, under §
274(d) of the Internal Revenue Code and § 1.274-5 of the Income Tax Regulations, the
amount of an employee's ordinary and necessary expenses of local travel or
transportation away from home that a payor (an employer, its agent, or a third party)
reimburses using a mileage allowance. Taxpayers are not required to use the
substantiation methods described in this revenue procedure. A taxpayer may
substantiate actual allowable expense amounts if the taxpayer maintains adequate
records or other sufficient evidence. The Internal Revenue Service prospectively

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adjusts the standard mileage rates for business, medical, and moving expenses
annually (to the extent warranted). Beginning with the rates for 2011, the Service will
publish the standard mileage rates for the use of an automobile for business, charitable,
medical, and moving expense purposes in a separate annual notice.
SECTION 2. BACKGROUND AND CHANGES
.01 Section 162(a) allows a deduction for the ordinary and necessary expenses a
taxpayer pays or incurs during the taxable year in carrying on any trade or business,
including the cost of operating an automobile to the extent that it is used in a trade or
business.
.02 Under § 262, a taxpayer may not deduct any portion of the cost of operating an
automobile attributable to personal use.
.03 To deduct expenses for travel or listed property, a taxpayer must substantiate the
expenses under § 274(d). Section 280F(d)(4) provides that listed property includes
passenger automobiles and any other property used as a means of transportation.
.04 Section 1.274-5(g) and (j) authorizes the Commissioner to prescribe rules and
establish methods under which mileage rates and 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).
.05 For purposes of determining adjusted gross income, § 62(a)(2)(A) allows an
employee to deduct business expenses the employee pays or incurs in performing
services as an employee under a reimbursement or other expense allowance

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arrangement with a payor.
.06 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 covered under
the arrangement to the payor, or
(2) Allows the employee to retain any amount in excess of the substantiated
expenses covered under the arrangement.
.07 Section 62(c) further provides, however, that substantiation is not required for the
expense to the extent provided in regulations under § 274(d).
.08 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. 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.
.09 Section 1.62-2(e)(2) provides that the amount of a business expense
substantiated under § 1.274-5(g) is treated as substantiated for purposes of § 1.62-2.
.10 Under § 1.62-2(f)(2), the Commissioner may prescribe rules for treating an
arrangement providing mileage allowances as satisfying the requirement of returning
amounts in excess of expenses if the arrangement requires the employee to return

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amounts that relate to unsubstantiated travel miles, even if the employee is not required
to return the portion of the allowance for substantiated travel miles that exceeds the
deemed substantiated amount for those miles. The allowance must be reasonably
calculated not to exceed the amount of the employee's expenses and the employee
must be required to return within a reasonable period (as defined in § 1.62-2(g)) any
portion of the allowance that relates to unsubstantiated travel miles. Under § 1.62-
2(h)(2)(i)(B), the portion of an allowance that relates to substantiated travel miles but
exceeds the substantiated amount for those miles, 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 Employment
Tax Regulations.
.11 Under ' 1.62-2(h)(2)(i)(B)(4), the Commissioner may prescribe special rules for
the timing of withholding and paying employment taxes on mileage allowances.
.12 This revenue procedure modifies Rev. Proc. 2009-54 as follows:
(1) The standard mileage rates for the use of an automobile for business,
charitable, medical, and moving expense purposes are now published in a separate
annual notice. The notice provides the amount a taxpayer must use in calculating
reductions to basis for depreciation taken under the business standard mileage rate
(see section 4.04 of this revenue procedure) and the maximum standard automobile
cost for automobiles under a FAVR allowance (see section 6.02(6) of this revenue
procedure). The Service plans to discontinue publishing this revenue procedure
annually but will publish modifications as required. This revenue procedure remains in
effect until superseded.

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(2) Section 4.05(1) is modified to allow taxpayers to use the business standard
mileage rate to calculate the amount of deductions for automobiles used for hire, such
as taxicabs.
SECTION 3. 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, and
(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 an employee incurs,
or that the payor reasonably anticipates an employee will incur, for transportation
expenses in performing services as an employee,
(2) Reasonably calculated not to exceed the amount of the expenses or
anticipated expenses, and
(3) Paid at the applicable standard mileage rate, a flat rate or stated schedule, or
under any other Service-specified rate or schedule.
.04 Flat rate or stated schedule. A mileage allowance is paid at a flat rate or stated

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schedule if it is paid on a uniform and objective basis for the expenses described in
section 3.03 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, 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 locations 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 4. BUSINESS STANDARD MILEAGE RATE
.01 Use of the business standard mileage rate. A taxpayer may use the business
standard mileage rate (published in an annual notice) to substantiate the amount of a
deduction for an automobile that a taxpayer either owns or leases. A taxpayer generally
may deduct an amount equal to either the business standard 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 (subject to
the limitations in section 4.05 of this revenue procedure).

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.02 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 7.06 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.
.03 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.
.04 Depreciation. Under § 1016, a taxpayer must reduce the basis of an automobile
used in business by the amount of depreciation the taxpayer claims for the automobile.
If a taxpayer uses the business standard mileage rate to compute the expense of
operating an automobile for any year, a per-mile amount (published in an annual notice)

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is treated as depreciation for those years in which the taxpayer used the business
standard mileage rate. If the taxpayer deducted the actual costs of operating an
automobile for one or more of those years, the taxpayer may not use the business
standard mileage rate to determine the amount treated as depreciation for those years.
.05 Limitations.
(1) A taxpayer may not use the business standard mileage rate to compute the
deductible expenses of five or more automobiles a taxpayer owns or leases and uses
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 6 of this revenue procedure) for the entire
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
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

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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 or 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 5. CHARITABLE AND MEDICAL AND MOVING STANDARD MILEAGE
RATES
.01 Charitable standard mileage rate. A taxpayer may use the charitable standard
mileage rate (published in an annual notice) to compute the charitable contribution
deduction for use of an automobile in rendering gratuitous services to a charitable
organization under § 170.
.02 Medical and moving standard mileage rate. A taxpayer may use the medical and
moving standard mileage rate (published in an annual notice) to compute the deduction
for use of an automobile (1) as medical care described in § 213, or (2) as a moving
expense deductible under § 217.
.03 Charitable or medical and moving standard mileage rate in lieu of variable
expenses. A deduction computed using the applicable standard mileage rate for
charitable, medical, or moving expense miles is in lieu of a deduction for 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

10
registration fees are not deductible for these purposes 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.
SECTION 6. 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 7 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 6.
(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
reasonable and statistically defensible in approximating the actual expenses employees
receiving the allowance would incur as owners of the standard automobile.
.02 Computing a FAVR allowance.
(1) FAVR allowance. A FAVR allowance includes periodic fixed payments and

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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 an 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 7.05 of this revenue procedure. An optional high mileage payment covers the
additional depreciation for a standard automobile attributable to business miles an
employee drives and substantiates for a calendar year in excess of the annual business
mileage for that year. If a FAVR allowance covers an employee 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
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.

12
(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 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 where an employee generally pays or incurs the costs of driving an
automobile in performing services as an employee. Thus, for purposes of determining
the amount of fixed costs, the base locality is generally the geographic locality or region
where the employee resides. For purposes of determining the amount of variable costs,
the base locality is generally the geographic locality or region where the employee
drives the automobile in performing services as an employee.
(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

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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 maximum standard automobile cost for a given
taxable year is published in an annual notice.
(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 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
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

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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 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.
(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, except as provided in
section 7.06 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

15
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. 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 6.04(3) of this revenue procedure, the total
amount of the depreciation component for the retention period a payor includes in
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.

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(3) If the depreciation component of the periodic fixed payments exceeds the
limitations in section 6.04(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 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 for an automobile reduces the basis of the automobile (but not below
zero) in determining adjusted basis as required by § 1016. See section 6.07(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 or, if greater, 80 percent of the annual business mileage of
that FAVR allowance. If the employee is covered by the FAVR 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.

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(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
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

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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 6.04(1) of this
revenue procedure or, if leased, whether the employee has computed deductible
business expenses for the automobile using actual expenses. The employee also 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 6.06 of this revenue procedure.
(2) Within 30 days of the end of each calendar year, the payor must provide each
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

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actual expenses for the lease period.
.08 Failure to meet section 6 requirements. If an employee receives a mileage
allowance that fails to meet one or more of the requirements of this section 6, 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 4,
7.01(1), and 7.02 of this revenue procedure to the extent the requirements of those
sections are met.
SECTION 7. MILEAGE ALLOWANCES
.01 If a payor pays a mileage allowance in lieu of reimbursing actual transportation
expenses an employee incurs or may incur, the payor is deemed to have substantiated
either:
(1) For any mileage allowance other than a FAVR allowance, the lesser of the
amount paid under the mileage allowance or the business standard mileage rate
multiplied by the number of substantiated business miles; or
(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
substantiated business miles 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 An employee is deemed to satisfy the adequate accounting requirements of

20
§ 1.274-5(f) and the requirement to substantiate by adequate records or other sufficient
evidence for purposes of § 1.274-5(c) if the amount of transportation expenses is
deemed substantiated under the rules provided in section 7.01 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 under § 1.274-
5T(b)(2) (travel away from home), § 1.274-5T(b)(6) (listed property, which includes
passenger automobiles and any other property used as a means of transportation), and
§ 1.274-5(c).
.03 An arrangement providing mileage allowances is 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 an
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 unsubstantiated travel miles, even
though the arrangement does not require the employee to return the portion of the
allowance that relates to substantiated travel miles and that exceeds the amount of the
employee's expenses deemed substantiated. For example, 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

21
allowance ($12.00) that exceeds the amount of the employee's expenses deemed
substantiated under section 7.01 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 7.05 of this
revenue procedure.
(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
business standard mileage rate and the number of substantiated travel miles. For
example, 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
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 substantiated business miles, 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.

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.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 7.01 of this revenue procedure, provided the employee
substantiates under section 7.02 of this revenue procedure. 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 7.01 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
expenses, the following rules apply:
(1) Except as otherwise provided in section 7.06(2) of this revenue procedure on
leased automobiles, if the amount of the expenses deemed substantiated under the
rules provided in section 7.01 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

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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 business standard mileage rate multiplied by the number of
business miles the employee substantiated minus the amount deemed substantiated
under section 7.01 of this revenue procedure. The itemized deduction is subject to the
2-percent floor on miscellaneous itemized deductions under § 67.
(2) An employee whose business transportation expenses for a leased
automobile are deemed substantiated under section 7.01(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 7.06(1) unless the employee does so
consistently beginning with the first business use of the automobile after December 31,
1997. An employee whose business transportation expenses for a leased automobile
are deemed substantiated under section 7.01(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 4 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.

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.08 A self-employed individual may deduct an amount computed under section 4 of
this revenue procedure in determining adjusted gross income under § 62(a)(1).
SECTION 8. WITHHOLDING AND PAYMENT OF EMPLOYMENT TAXES
.01 The portion of a mileage allowance (other than a FAVR allowance), if any, that
relates to substantiated business miles and that exceeds the amount deemed
substantiated for those miles under section 7.01(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) For a mileage allowance paid as a reimbursement, the excess described in
section 8.01 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 substantiated business miles. See § 1.62-2(h)(2)(i)(B)(2).
(2) For a mileage allowance paid as an advance, the excess described in section
8.01 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
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) For a mileage allowance that is not computed on the basis of a fixed amount

25
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 6 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 7.01(1) of this revenue procedure by comparing the total mileage allowance
paid for the period to the business standard mileage rate 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, 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 substantiated business miles (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
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

26
substantiated for those miles under section 7.01(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
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 9. EFFECTIVE DATE

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This revenue procedure is effective for (1) deductible transportation expenses paid
or incurred on or after January 1, 2011, and (2) mileage allowances or reimbursements
(a) paid to an employee or to a charitable volunteer on or after January 1, 2011, and (b)
for transportation expenses the employee or charitable volunteer pays or incurs on or
after January 1, 2011.
SECTION 10. EFFECT ON OTHER DOCUMENTS
Rev. Proc. 2009-54 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).