Many employers use the IRS’s official rate for vehicle costs for reimbursements to their employees.  With the steep rise in fuel costs this year, it is obvious that the IRS’s current 2005 rate of 40.5 cents per business mile, which they actually established last November, is behind the times.

According to this article about Arkansas government employees, they have been paid 37 cents per mile driven for work purposes, and will now have it raised to 39 cents. 

Historically, when there is a huge increase in the cost of fuel, the IRS big-wigs takes take their time to see if it is a fluke or something that will last for a while. Since everything I have seen indicates that $3.00 per gallon will soon be the norm, I am betting that there will be a mid-year change in the IRS’s official rate for 2005.  The last time they did this was in 1999, with a reduction in the standard rate as of 4/1/99 from 32.5 cents per mile down to 31.0 cents.  This year’s change will probably be effective as of October 1, 2005. 

As always, this kind of situation points out the importance of keeping records of your actual operating costs so that, at tax time, your preparer can use them to deduct the higher of the standard rate or pro-rated actual costs.  Of course, some vehicles, such as those that used Section 179, don’t have the option of which method to use.  They must stick with the actual costs.

Sherry recently received this from the exchange client who was the subject of this debate I had with her CPA on the definition of like kind for poultry houses.  

I thank you for the excellent service you provided us, including the “short course” for our accountant.  He told me later that you had convinced him and that he would have done just what we did.  GREAT !!!!  Look forward to your response.  Thanks again.

I should also point out that I have yet to receive a single note of disagreement over my interpretation of like kind in this regard.

This kind of thing, where I have to educate IRS employees and other tax practitioners on the proper way to handle things, has gone on for decades.  Nobody in the tax profession, especially me, can truthfully make the claim to know everything about the tax laws.  No such person exists.  The laws and rules literally change daily and we all have to learn new things constantly.  However, in situations like this, I can’t help but wonder how many people were the victims of the misinformed tax pros.  With thousands of poultry houses in this area (Tyson country), this easily could have cost a lot of farmers a ton of taxes that could have easily been legally avoided.