FYI. A partner is not considered an employee.     Question Are partners considered employees of a partnership or are they considered self-employed? Answer Partners in a partnership (including certain members of a limited liability company (LLC)) are considered to be self-employed, not employees, when performing services for the partnership. https://www.irs.gov/faqs/small-business-self-employed-other-business/entities/entities-1#:~:text=Are%20partners%20considered%20employees%20of,performing%20services%20for%20the%20partnership. 

Dear TaxGuyBill,      The tax treatment of fringe benefit paid to owner-employees of an “S Corp” is different form the tax treatment for other employees.      26 U.S. Code Section 1372(a) provides that, for purposes of applying the income tax provisions of the Code relating to employee fringe benefits, an S corporation shall be treated as a partnership, and any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership. In short, more-than-two-percent shareholders are treated like partners in a partnership. Interesting feedbacks but they do not address the point I'm asking. For your convenience you can check https://www.law.cornell.edu/uscode/text/26/1372 and then let me know. If you still understand that feedbacks are correct, I'm going to close this discussion. To All, thank you for your time and consideration.

 Dear qbteachmt (Level 13), Thank you for your feedbacks. I think you are missing at least two regulation. 1. Section 1372(a) provides that, for purposes of applying the income tax provisions of the Code relating to employee fringe benefits, an S corporation shall be treated as a partnership, and any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership. In short, more-than-two-percent shareholders are treated like partners in a partnership. 2. Qualified business use (Form 4562. Part V. Section A. Listed Property, line 26 y 27).Generally, a qualified business use is any use in your trade or business. However, it does not include: the use of the property as compensation for services performed by a 5% owner or related person.

Hello, thank you for your feedbacks. About my doubt: Section 1372(a) provides that, for purposes of applying the income tax provisions of the Code relating to employee fringe benefits, an S corporation shall be treated as a partnership, and any 2-percent shareholder of the S corporation shall be treated as a partner of such partnership. In short, more-than-two-percent shareholders are treated like partners in a partnership. Qualified business use (Form 4562. Part V. Section A. Listed Property, line 26 y 27). Generally, a qualified business use is any use in your trade or business. However, it does not include: the use of the property as compensation for services performed by a 5% owner or related person.  

Probably I’m missing something here, but I guess there are additional costs for example SS and Medicare. But this is not my point. I'm focus on the question whether the S Corp must include always the benefit on Form W-2 or there are other options. My point is that personal use of a company vehicle is not qualified business use, even though the company properly reports employee-shareholder. In my example the 20% personal use of the vehicle expenses is neither tax deductible for the S Corp nor the employee-shareholder. It looks similar whether the employee-shareholder owns the vehicle and does not request expenses reimbursement from the S Corp. Nobody takes income or expenses. Thank you for sharing your point of view.