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Confronting Non-Compliance & Fraudulent Personal Use Reporting

September 19, 2008, by Mike Antich - Also by this author

By Mike Antich

A major pharmaceutical company reports a 21-percent increase in the fleet's total annual miles driven. The increased mileage occurred despite the fact that the size of sales territories has not increased, nor has the fleet grown in total number of units in service. Why the increase in mileage? The suspicion is that the high cost of fuel is causing more employees to use fleet vehicles for personal use since the company pays for gasoline. However, there has not been a corresponding increase in reported personal use miles. This is a broad-based industry issue. For instance, companies that allow drivers to take fleet vehicles home, but do not allow personal use, likewise report a growing problem of policing unauthorized personal use by employees looking to reduce their "personal" fuel costs. The severity of the problem seems to parallel price increases at the pump.


Non-Compliance or Fraudulent Reporting

A company's personal use policy must comply with all federal tax requirements. This requires employees to report vehicle usage to employers, properly compute personal use of the company-provided vehicle, and comply with payroll tax requirements. A fleet manager's responsibility is to protect the company from tax problems associated with unreported personal use.

This is easier said than done. Sometimes drivers will go to elaborate extremes to avoid reporting personal use miles. One fleet manager related a story about a former driver who installed a "kill switch" on his company-provided vehicle to disengage the odometer when driving personal miles.

Most personal use problems revolve around non-compliance. Many drivers report driving zero personal use miles. A common remedy is to assess a default amount when drivers don't report personal use mileage. For instance, some companies charge 100 percent of the IRS Annual Lease Value and leave it to the driver to claim a business use deduction on his or her personal income tax return. Admittedly, this is a punitive measure, but fleet managers who implement this practice say that once it is done, they never have a problem with that driver again. In addition, this practice protects the company by including the maximum taxable benefit on the employee's W-2. Employees who have mileage records can still take a deduction for business use mileage at a later time on their personal income taxes. However, some companies shy away from implementing such a fleet policy due to a perception that it is unfair to some employees. For instance, not all employees can itemize their taxes, especially younger employees straight out of school.


Employees Who Work from Home

Another frequent problem with personal use reporting occurs when a driver works out of his or her home. Often, employees working from home offices report very little personal miles, arguing that the majority of vehicle use is from their "office" to a customer, a job site, or other business location. Personal use for employees who work from their homes is complicated because of the confusion over whether the first and last trip of the day is considered a business use trip or personal use. The IRS says that commuting to work is personal use, not business use. Some employees working from a home office believe they are on a business trip anytime they leave their homes. But that's not how it is defined in IRS regulations. Unless a home is the "primary place of business," the first trip of the day is going to work, not leaving work. For a typical sales rep, the primary place of business is really the client's office. Therefore the first and last business trips are personal use.

Sometimes employees report no personal use, insisting the company vehicle is used for business only and all personal use is with their private car. One fleet manager related how an employee attempted to "opt out" of personal use with that explanation. The fleet manager played "hardball" with the employee by requiring him to sign an affidavit stating that the company vehicle was only used for business. In addition, the fleet manager required the employee to provide the year, make, and VIN of the alternative vehicle used for personal transportation. Finally, the fleet manager required the employee to drive the personal vehicle to the office everyday to pick up the company car. At the end of the workday, the employee would be required to return the company car to the office and drive the personal car home. This might sound Draconian, but it worked.

This approach works if the employee is based at the headquarters location. However, most company drivers are geographically dispersed. In these instances, fleet managers rely on the employee's supervisor to resolve the situation. If after informing the immediate supervisor the problem continues to persist, then the issue is escalated to the next level of management.


Playing Hardball

Not all drivers are scofflaws. The overwhelming majority of employees comply with personal use recordkeeping. In fact, some are downright meticulous about logging every personal use mile driven. However, the 80/20 rule applies with personal use reporting. The majority of time is spent chasing the small minority of drivers who do not or will not comply with personal use reporting requirements. Sometimes it is necessary to use the employee's manager to wield a big stick; other times, the fleet manager is the one who wields the big stick. The hard reality is that there is no other way to resolve non-compliance and fraudulent non-reporting of personal use. To curtail non-compliance, you need to play hardball.

Let me know what you think.



  1. 1. Richard Battersby [ September 22, 2008 @ 05:48PM ]

    Like fuel prices this year and prior to that the technician shortage, personal use will be one of the biggest universal fleet issues evolving in the next 12 months. Unfortunately, as Mike noted this is not an easy issue to address with soaring fuel prices and employees perceiving this PRIVILEGE as somehow being a right.

  2. 2. Barbara Follett [ November 17, 2008 @ 07:52PM ]

    Great information.. I am looking for a company that allows personal use of the company car where the employee pays a personal use fee. I am looking for policy around this - what is personal use when does the company pay for gas? Can employees use the vehicles for family vacation?

  3. 3. Peter Belloli [ November 25, 2008 @ 11:00AM ]

    Another great resource is the National Association of Fleet Administrators (NAFA). They discuss this issue in depth. You can get sample policy statements.

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Mike Antich

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Mike has covered fleet management and remarketing for more than 20 years and entered the Fleet Hall of Fame in 2010.

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