Church Provided Car

Does your church provide you with a car for your business and personal use? Many churches do. It is commonly assumed that this arrangement has no tax consequences, and so no additional income is added to the pastor's W-2 by the church treasurer at the end of the year. In fact, if you use a church-provided car for any personal use, the value of that personal use must be determined and reported by the church on your W-2. This lesson will summarize how to calculate the value of the personal use of a church-provided car.

The church may use either general valuation principles or one of three special valuation rules to compute the value of the personal use of a church-provided car. General valuation principles must be used unless your church chooses to use one of the three special valuation rules. If your church uses a special valuation, you may use either that same valuation rule or the general valuation principles. Each of these four valuation methods is summarized below.

(1) general valuation principles

Under the general valuation principles, the amount to add to your income equals (1) the amount you would have to pay to lease a comparable vehicle on comparable terms in the same geographical area, multiplied times (2) the percentage of total vehicle miles for the year that were of a personal (rather than business) nature.

(2) special automobile lease valuation rule

Under this special rule, if your church provides you with a car that is available to you for an entire calendar year, the value of the taxable benefit is the annual lease value ("ALV") of the car multiplied times the percentage of total miles driven during the year that are for personal use. The ALV is determined from a table that is reproduced in IRS Publication 15-B (Employer's Guide to Fringe Benefits).

(3) special cents-per-mile rule

Under this rule, the standard mileage rate for business miles is multiplied by the number of miles you use the vehicle for personal purposes. If your employer does not provide the fuel for the vehicle, the mileage rate may be reduced by up to 5.5 cents per mile. Business miles must be substantiated and subtracted from total miles to determine personal miles. To qualify for use of this rule, the vehicle must be regularly used in the employer’s trade or business throughout the calendar year (or for such shorter period of time as the vehicle may be owned or leased), or actually driven at least 10,000 miles in that year and used primarily by employees. This rule cannot be used for an automobile with a market value of more than an amount specified annually by the IRS (generally about $16,000). This limitation prevents many ministers from using the "cents-per-mile" rule to value the personal use of a church-provided car. It was imposed because of an IRS concern that the cents-per-mile rule would not adequately value the personal use of employer-provided "luxury cars." If you use the cents-per-mile method, you must continue to do so for all future years with respect to the same vehicle (unless the "commuting valuation rule," discussed below, is used).

(4) special commuting valuation rule

If you are provided with a church-owned car, and you are required to commute to and from work in the car, then the value of the commuting miles (which are always considered personal rather than business) can be computed at a rate of $3 per round-trip commute or $1.50 per one-way commute. The value of all your commuting is included on your W-2. For this rule to apply, the following 5 conditions must be satisfied:

(1) the vehicle is owned or leased by the church and is provided to an employee for use in connection with church business

(2) for "non-compensatory" business reasons (i.e., security) the church requires the employee to commute to and from work in the vehicle

(3) under a written policy statement adopted by the church board, no employee of the church can use the vehicle for personal purposes, except for commuting or "de minimis" (minimal) personal use (such as a stop for lunch between two business trips)

(4) the church reasonably believes that, except for commuting and de minimis use, no church employee uses the vehicle for any personal purpose

(5) the employee who is required by the church to commute to and from work in the vehicle is not a "control employee" (defined below)

The tax regulations define a control employee (for purposes of the commuting valuation rule) as an employee who satisfies any of the following (for 2003):

• a board appointed, confirmed, or elected officer with annual compensation of $80,000 or more
• a director (regardless of compensation)
• any employee with annual compensation of $160,000 or more

Obviously, most senior pastors will not be able to take advantage of this special commuting rule since they usually are directors of their church, and in some cases they are appointed or confirmed by the church board and receive compensation of $80,000 or more during the year. In some cases, however, pastors may be eligible for the special commuting rule.