Bad Things That Can Happen If This Computation Is Not Made
IRS Auditor Question: Show me how you computed the personal use fringe benefit for each vehicle. - This is a frequent business audit question! If the agent is looking at executive compensation, the agent will probably use the IRS's "Executive Compensation - Fringe Benefits Audit Techniques Guide ." Page 4 of that guide specifically discusses personal use of a car or vehicle. Reports generated by the Employee Auto Compensation Analyzer were able to successfully defuse this issue.
If personal use of a company vehicle is not included in on W-2s, and the IRS finds this:
Employees will have to amend old tax returns, and pay tax that they didn't think that they owed. This is not good for employee moral!
Employers can be subject the §6721 penalty for failure to file a correct information return for each employee with personal use of a company vehicle.
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October, 2006 Survey
Note: This computation has several descriptions, including auto fringe, auto fringe benefit, personal use of company vehicle.
In the "good
old days" the personal use of a business vehicle wasn't an issue. Back then, the employer looked the other way. The employer got a deduction for the car. The employee got a "tax free" fringe for personal use of the company car. Of course, that tax free fringe never was supposed to be tax free at all.
Now Form 4562 has a specific section where vehicle issues need to be disclosed. It is pretty clear on that form, if the personal use of the car is not zero, the employer will have to include some amount on the W-2(s) for personal use of the vehicle(s). Failure to do that could result in penalties for the employer, additional tax (when it is least expected) for the employee, possible preparer penalties and possible dividend treatment.
The DTS Employee Auto Compensation Analyzer saves your time and reduces your frustration dealing with these calculations. The program will lead you through the qualification tests and make the calculations. The program helps you to quickly arrive at the lowest allowable fringe benefit for personal use of company vehicles.
This program also computes the auto inclusion or auto lease inclusion (vehicle inclusion or vehicle lease inclusion) amounts.
Since both the employee and the IRS might be curious how this calculation is made, the program generates excellent reports .
Report personal use of company owned auto in W-2, Box 1. It may also be optionally reported in W-2, Box 14.
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