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In the first revenue ruling of the year, the IRS addresses certain arrangements that reimburse employees for local transportation expenses they incur while using their own vehicles for business travel [Rev. Rul. 2004-1, IRB 2004-4 (1/26/04)]. In particular, the Service looks at whether a mileage allowance calculated on a basis similar to that used in computing a courier's compensation may be treated as paid under an "accountable plan" so the allowance will be excluded from the courier's gross income and exempt from the withholding and payment of employment taxes. [See page 3 for details on what qualifies as an accountable plan.]
The Mileage Allowance Plan
"QuickTrip Inc." hires drivers to deliver packages locally. These employees must own or lease vehicles (including automobiles, vans, pickups, or panel trucks) for use in connection with the performance of services as couriers.
QuickTrip charges its customers for deliveries based on several factors, including location, time of day, mileage between pickup and delivery, expedited service (if requested), and size and weight of a package. This per-package charge is referred to as the "tag rate."
The mileage component of the tag rate is calculated as though each package was delivered separately. However, the drivers often pick up multiple packages from one location, deliver multiple packages to another location, and travel overlapping routes between and among customers. So, the tag rate may not accurately reflect the transportation expenses incurred with respect to a …