Vehicle Cost Compliance
FAVR vehicle cost compliance is one of the three FAVR tax rules. If a driver is in compliance with all three FAVR tax rules, their reimbursement will not be tested for taxable income.
For a driver to be in vehicle cost compliance, that driver’s vehicle must have cost – when new – at least 90% of the cost of their FAVR vehicle profile. Note that vehicle cost compliance is based on the value of the driver’s vehicle when it was new, not its current value or the price that the driver paid for it.
If a driver’s vehicle costs less than 90% of their vehicle profile value, that driver is out of vehicle cost compliance. As a result, their FAVR reimbursement will be tested for taxable income once per quarter.
Vehicle cost compliance is intended to prevent tax-free over-reimbursement. Since FAVR drivers are reimbursed based on their vehicle profile and not on the car they actually drive, their reimbursements will greatly exceed their true cost of driving if their vehicle profile is much more expensive than their personal car. Vehicle cost compliance prevents this by applying a taxable income test for drivers with inexpensive cars.
With Cardata, vehicle cost compliance is measured by submitting an IRS vehicle declaration on the Cardata app. This declaration includes basic information about the driver’s personal vehicle, such as its model year and capital cost, and is submitted at registration.
It’s important to be aware of all updated IRS guidelines for FAVR programs — read through the rules as of 2019. Find out more about FAVR programs and program standard vehicles, or find out more about FAVR tax rules, including more about vehicle cost compliance. If you’re curious about running a FAVR program with Cardata, get in touch with a Cardata expert.