itonewbie
Level 15

@mlcpaYou seem to have misunderstood the application of the law and regulations.  There is no question personal use of company vehicle is a taxable fringe benefit.  As explained in my post earlier, 80% of the vehicle is considered business use and 20% should be classified as benefits cost of the employee-shareholder.  @qbteachmt has also given you two alternatives for accounting and explained them in details by way of examples.

Your understanding of Sec. 1372 is flawed.  First of all, guidance for that code section covers only the tax treatment of medical insurance premium paid for 2% shareholder-employees of S-corp and serves to clarify that employee fringe benefits paid or furnished to these individuals are not excludable (e.g. under Part III, Subchapter B, of Chapter 1) unless the related provision specifically provides that it applies to partners.  Consequently, employee fringe benefits not excludable to 2% shareholder-employees are treated as guaranteed payments under Sec. 707(c) and includable as such shareholder-employees' gross income, as required under Sec. 61(a).  By the same token, the S-corp is entitled to deduct the costs of such fringe benefits under Sec. 162(a).  In the case of medical insurance premium paid for or on behalf of a 2% shareholder-employee, the shareholder-employee may then take an above-the-line deduction pursuant to Sec. 162(l).

In fact, personal use of employer-provided vehicle is not even an excludable fringe benefits under Sec. 132 or other sections of the Code, whether or not the individual is to be treated as an employee or partner for income tax purposes.  In this particular case where the company-owned vehicle was provided to the 2% shareholder-employee for personal use (other than as transportation for medical reasons), Sec. 61 and Treas. Reg. 1.61-21 dictate that the value of this fringe benefit must be included in the individual's gross income.  Subsection (a)(4)(ii) of the reg. is also specific that partners are within the definition of employees.  Subsections (d) and (e) then go on to outline the applications of ALV and cents-per-mile methods mentioned in my original response.

There is no question the value for the 2% shareholder-employee's personal use of company car is reportable as wages on the W-2 and that the S-corp could take a deduction for the 20% related to benefit costs as explained in various ways above.

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Still an AllStar