CCA 1997-40
Chief Council Advise
CCA 1997-40
Headnote:
Reference(s):
FULL TEXT:
Date: November 5, 1997
CC
OM:IT&A:2 EBCleverdon — FREV-111132-97
OFFICE OF CHIEF COUNSEL
INTERNAL REVENUE SERVICE
MEMORANDUM TO:
Chief, Kansas-Missouri Appeals Office 8000 STL
FROM:
Assistant Chief Counsel (Income Tax & Accounting)
SUBJECT:
Vehicles for Hire
This is in response to your request, dated May 16, 1997, for technical information concerning the use of the business standard mileage rate. Thank you for bringing to our attention an aspect of the applicable revenue procedure that may merit clarification.
Section 5 of applicable standard mileage rate revenue procedure (currently Rev. Proc. 96-63, 1996-2 C.B. 420) generally allows taxpayers to deduct as a business expense, in lieu of actual expenses, an amount equal to the business standard mileage rate times the number of business miles traveled. However, section 5.06(1) states that the business standard mileage rate may not be used to compute the deductible expenses of (a) vehicles used for hire (VUFH), such as taxicabs, (b) two or more automobiles used simultaneously (such as in fleet operations), or (c) any vehicle that is leased, rather than owned, by the taxpayer.
You indicated that questions have arisen concerning the use of the business standard mileage rate by taxpayers who are in the trade or business of providing courier services. The taxpayers use their personally owned vehicles to pick up and deliver documents, packages, and other items for customers. Your question, specifically, is whether these taxpayers may not compute their vehicle expense deductions using the standard mileage rate because their vehicles are VUFH.
Although it specifically excludes VUFH, the revenue procedure does not further define the phrase. Caselaw dealing with the VUFH provision is virtually nonexistent. Dillon v. Commissioner, 902 F.2d 406 (5th Cir. 1990), however, sheds some light on the subject. In that case, the taxpayers, an independent contractor and his spouse, used their automobiles to pick up and deliver newspapers to residences and businesses and to stock vending machines on their routes. The court held that the taxpayers could not use the standard business mileage rate because, under section 5.06(1)(b) of the revenue procedure, they operated two vehicles simultaneously. The court indicated, however, that the VUFH exception of section 5.06(1)(a) would not bar the use of the business standard mileage rate.
Webster's New International Dictionary (Second Edition) defines "hire," as relevant here, as:
The price, reward, or compensation paid, or contracted to be paid, for the temporary use of a thing or a place, for personal service, or for labor; . . . in its general sense, pay for the use of anything, including wages, rent, and formerly interest; in specific sense, recompense paid for the use of a chattel other than money or for services.
Based on the above, we believe that a distinction should be drawn between the hiring of PROPERTY and the hiring of SERVICES. A VUFH falls within the first category, whereas an individual employed to perform services, such as delivery services, falls within the second category. In determining whether an automobile is a VUFH, the question is whether the taxpayer makes the automobile available for physical use by the customer or whether the use of the automobile is merely incidental to the taxpayer's performance of services. Some relevant considerations are:
— the extent to which the customer has control over the operation of the vehicle,
— whether, on each trip, the vehicle is used on an exclusive basis to serve a customer,
— whether payment is based predominantly on the costs of the vehicle rather than on the nature of services performed,
— whether the use of a specific vehicle is an essential term of the contract with the customer, and
— whether the customer may be physically present in the vehicle.
None of these considerations is dispositive of the issue, and the list is not exclusive of other considerations. 1
Using the Dillon case as an example, a passenger automobile used to deliver newspapers in the course of the taxpayer's trade or business will generally not be considered a VUFH. The employer is mainly concerned about the delivery of papers, and the physical use of the automobile is not at the employer's disposal. Generally this will be so even if the employer maps out the delivery route and requires the taxpayer to use an automobile with certain minimum specifications. However, this result may change under extenuating circumstances, such as the requirement that the taxpayer use an unusual, unique, or highly specialized automobile or if the taxpayer's payment is primarily based on the number of miles driven (rather than based on, for example, number of items delivered or number of hours worked).
On the other hand, as specified in the revenue procedure, a taxicab is a VUFH. Although a "fare" hires the driver's services, these services are incidental to the fare's physical use of the taxicab.
This memorandum is for your general information and is advisory only. It is not intended to be conclusive as to the tax consequences for any specific taxpayer. If you have any further questions on this matter, please contact Edwin B. Cleverdon of our office at (202) 622-4920.
By
George Baker
Assistant to the Chief,
Branch 2
__________________________
1
It should be noted that the phrase "vehicles used for hire" is not the same as, and is not coterminous with, two similar phrases used in section 280F(d) to describe "listed property," which includes
(i) any passenger automobile and (ii) any other property used as a means of transportation. The term "passenger automobile" does not include "any vehicle used by the taxpayer directly in the trade or business of transporting persons or property for compensation or hire" under section 280F(d)(5)(B)(ii), and the term "any other property used as a means of transportation" does not include "property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for
compensation or hire" under section 280F(d)(4)(C).
END OF DOCUMENT - © Copyright 2005 RIA. All rights reserved.
http://checkpoint.riag.com/servlet/com.tta.checkpoint.servlet.CPJSPServlet?usid=6b42225... 7/25/2005
HOPE YOU ALL GET A COPY OF THIS FOR FUTURE USE INCASE OF AN AUDIT.
PERTAINS TO CARGO VANS AND PICK-UP OR VAN WITH BOXES.
FRANK
Chief Council Advise
CCA 1997-40
Headnote:
Reference(s):
FULL TEXT:
Date: November 5, 1997
CC
OM:IT&A:2 EBCleverdon — FREV-111132-97OFFICE OF CHIEF COUNSEL
INTERNAL REVENUE SERVICE
MEMORANDUM TO:
Chief, Kansas-Missouri Appeals Office 8000 STL
FROM:
Assistant Chief Counsel (Income Tax & Accounting)
SUBJECT:
Vehicles for Hire
This is in response to your request, dated May 16, 1997, for technical information concerning the use of the business standard mileage rate. Thank you for bringing to our attention an aspect of the applicable revenue procedure that may merit clarification.
Section 5 of applicable standard mileage rate revenue procedure (currently Rev. Proc. 96-63, 1996-2 C.B. 420) generally allows taxpayers to deduct as a business expense, in lieu of actual expenses, an amount equal to the business standard mileage rate times the number of business miles traveled. However, section 5.06(1) states that the business standard mileage rate may not be used to compute the deductible expenses of (a) vehicles used for hire (VUFH), such as taxicabs, (b) two or more automobiles used simultaneously (such as in fleet operations), or (c) any vehicle that is leased, rather than owned, by the taxpayer.
You indicated that questions have arisen concerning the use of the business standard mileage rate by taxpayers who are in the trade or business of providing courier services. The taxpayers use their personally owned vehicles to pick up and deliver documents, packages, and other items for customers. Your question, specifically, is whether these taxpayers may not compute their vehicle expense deductions using the standard mileage rate because their vehicles are VUFH.
Although it specifically excludes VUFH, the revenue procedure does not further define the phrase. Caselaw dealing with the VUFH provision is virtually nonexistent. Dillon v. Commissioner, 902 F.2d 406 (5th Cir. 1990), however, sheds some light on the subject. In that case, the taxpayers, an independent contractor and his spouse, used their automobiles to pick up and deliver newspapers to residences and businesses and to stock vending machines on their routes. The court held that the taxpayers could not use the standard business mileage rate because, under section 5.06(1)(b) of the revenue procedure, they operated two vehicles simultaneously. The court indicated, however, that the VUFH exception of section 5.06(1)(a) would not bar the use of the business standard mileage rate.
Webster's New International Dictionary (Second Edition) defines "hire," as relevant here, as:
The price, reward, or compensation paid, or contracted to be paid, for the temporary use of a thing or a place, for personal service, or for labor; . . . in its general sense, pay for the use of anything, including wages, rent, and formerly interest; in specific sense, recompense paid for the use of a chattel other than money or for services.
Based on the above, we believe that a distinction should be drawn between the hiring of PROPERTY and the hiring of SERVICES. A VUFH falls within the first category, whereas an individual employed to perform services, such as delivery services, falls within the second category. In determining whether an automobile is a VUFH, the question is whether the taxpayer makes the automobile available for physical use by the customer or whether the use of the automobile is merely incidental to the taxpayer's performance of services. Some relevant considerations are:
— the extent to which the customer has control over the operation of the vehicle,
— whether, on each trip, the vehicle is used on an exclusive basis to serve a customer,
— whether payment is based predominantly on the costs of the vehicle rather than on the nature of services performed,
— whether the use of a specific vehicle is an essential term of the contract with the customer, and
— whether the customer may be physically present in the vehicle.
None of these considerations is dispositive of the issue, and the list is not exclusive of other considerations. 1
Using the Dillon case as an example, a passenger automobile used to deliver newspapers in the course of the taxpayer's trade or business will generally not be considered a VUFH. The employer is mainly concerned about the delivery of papers, and the physical use of the automobile is not at the employer's disposal. Generally this will be so even if the employer maps out the delivery route and requires the taxpayer to use an automobile with certain minimum specifications. However, this result may change under extenuating circumstances, such as the requirement that the taxpayer use an unusual, unique, or highly specialized automobile or if the taxpayer's payment is primarily based on the number of miles driven (rather than based on, for example, number of items delivered or number of hours worked).
On the other hand, as specified in the revenue procedure, a taxicab is a VUFH. Although a "fare" hires the driver's services, these services are incidental to the fare's physical use of the taxicab.
This memorandum is for your general information and is advisory only. It is not intended to be conclusive as to the tax consequences for any specific taxpayer. If you have any further questions on this matter, please contact Edwin B. Cleverdon of our office at (202) 622-4920.
By
George Baker
Assistant to the Chief,
Branch 2
__________________________
1
It should be noted that the phrase "vehicles used for hire" is not the same as, and is not coterminous with, two similar phrases used in section 280F(d) to describe "listed property," which includes
(i) any passenger automobile and (ii) any other property used as a means of transportation. The term "passenger automobile" does not include "any vehicle used by the taxpayer directly in the trade or business of transporting persons or property for compensation or hire" under section 280F(d)(5)(B)(ii), and the term "any other property used as a means of transportation" does not include "property substantially all of the use of which is in a trade or business of providing to unrelated persons services consisting of the transportation of persons or property for
compensation or hire" under section 280F(d)(4)(C).
END OF DOCUMENT - © Copyright 2005 RIA. All rights reserved.
http://checkpoint.riag.com/servlet/com.tta.checkpoint.servlet.CPJSPServlet?usid=6b42225... 7/25/2005
HOPE YOU ALL GET A COPY OF THIS FOR FUTURE USE INCASE OF AN AUDIT.
PERTAINS TO CARGO VANS AND PICK-UP OR VAN WITH BOXES.
FRANK