IRS Auditing More Fleets for Inadequate Personal Use Recordkeeping
If personal use of a company vehicle is allowed, then you are responsible to ensure company compliance with IRS regs and to avoid tax problems associated with unreported personal miles. The reason for this admonition is that more companies are being audited for inadequate recordkeeping of business use.

“There will always be employees who are meticulous in their recordkeeping and others who are not. What’s important is having a policy that protects the company in case of inadequate reporting,” said Susan Stiles, manager of customer services for PHH Arval, a fleet management company in Sparks, Md.
Non-Compliance with Personal Use Reporting
Most companies maintain a checklist to monitor driver submission of personal use reports. If a driver fails to submit a report, a monthly notice is sent as a reminder and copied to the employee’s supervisor. However, this alone is not always successful.
Every fleet manager has stories of drivers who simply can’t or won’t report personal use mileage on a regular or timely basis. Some fleet managers have a policy that if a driver doesn’t report mileage, the company calculates 100-percent of the annual lease value as personal use. It is a punitive measure, but some fleet managers who implement this practice say that once it is done, they never have a problem with that driver again. 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. “Not all employees can itemize their taxes, especially younger employees straight out of school,” said Stiles.
Employees Who Work at 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, 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,” said Stiles. The IRS says that commuting to work is not business use, it is personal use. “Some companies feel that employees working from a home office are on a business trip anytime they leave their homes. But that’s not how it is defined in IRS regulations,” said Stiles. 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. “If an employee’s first trip is to a client, let’s say for illustration’s sake, 180 miles away, a simple remedy to avoid 180 personal miles is to have a reason to make the first stop of the day to a nearby Kinko’s, for example. Thereafter, all miles driven are business miles,” said Stiles.
Another area of caution is when spouses and licensed children are allowed to drive company-provided vehicles. You must ensure that miles driven by them are reported as personal miles.
Handling Mid-Year Terminations
When employees are terminated, immediately perform a reconciliation or true-up for personal use. “Don’t wait until the end of the year to get a mileage report, when you might not be able to find that person,” said Stiles. Likewise, when an employee voluntarily departs the company, don’t wait until year’s end to calculate and withhold taxes for personal use. “It’s easier to do withholding on the employee’s last paycheck,” said Stiles. Your HR department, as part of the employee closeout process, should require the employee’s supervisor to perform a physical inspection of the vehicle, repossess the car keys, and notify the fleet department to cancel fuel and maintenance charge cards. In addition, HR should obtain a mileage statement on business and personal use miles as of the last day of employment to calculate the taxable benefit for the final payroll adjustment.
Employees Who Claim No 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. “If an employee wants to opt out of personal use with that explanation, I would have them sign an affidavit and obtain the year, make, and VIN of the alternative vehicle they use for transportation,” said Stiles. “I would also require that they drive their personal vehicle to the office to pick up the company car every day. At the end of the workday, they would be required to return the company car and drive their personal car home.”
An Expensive Headache
Managing personal use is a headache. It is also expensive, with internal costs ranging from $32 to $70 a year per vehicle. However, it all becomes worthwhile should your friendly IRS agent come knocking on your front door. Let me know what you think.
mike.antich@bobit.com
More Operations

90% Use Telematics. Are Fleets Getting Safer? | AF News Recap
This week, we're breaking down which industries have the highest rates, how Jamie McKay manages 2,400 vehicles, what's happening with the 2027 fleet awards, and why software-defined vehicles could introduce new costs.
Read More →
What's Best Handled by an FMC, and What's Better Done Directly?
Fleet managers continue to rely on FMCs for essential services but are taking a closer look at where working directly with suppliers can improve efficiency and responsiveness.
Read More →
Fleet Meets: Erin Gilchrist
Meet Erin Gilchrist, the inaugural Mike Antich Spirit of Fleet Award winner, as she shares insights on leadership, mentorship, the power of industry connections, and why people remain at the heart of fleet's future.
Read More →
How 2026 Fleet Visionary Jamie McKay Manages 2,400 Vehicles Across 37 States
How do you keep 2,400 vehicles running across 37 states? Fleet Visionary Award winner Jamie McKay shares how collaboration, flexibility, and a few simple strategies help her tackle fleet management challenges at Aptive Pest Control.
Read More →
Managing Fleet Costs in an Era of Permanent Volatility
Fleet operating costs have risen more than 20% since 2020, raising a key question: When does extending a vehicle's service life stop making financial sense?
Read More →
The Next Evolution of Fleet Management: Autonomous Operations
This opening keynote session at the Fleet Forward Conference highlights the future of autonomous driving for fleets.
Read More →
How to Reduce the Total Cost of Risk From Catalytic Converter Theft
A stolen catalytic converter can cost fleets far more in downtime and lost productivity than in repairs. A total-cost-of-risk approach can help fleet managers quantify their exposure and prioritize theft prevention.
Read More →
Personal-Use Charges Rise as Vehicle Values Fall | AF News Recap
Personal-use charges are climbing, wholesale used-vehicle values are declining, and commercial fleet sales growth is slowing. This week, we're breaking down the latest fleet data, plus how Element Fleet Management is helping Waymo prepare for its first Canadian robotaxi market.
Read More →
Here's When You Should Make an Exception to Fleet Policy
Fleet policies are designed to create consistency, but not every driver or situation fits neatly within standard rules.
Read More →
AI-Native or AI-Acquired: What Should Fleet Managers Look for in an AI Platform?
Six questions can help fleet managers look beyond AI marketing claims to evaluate integration, data access, and real-world operational performance.
Read More →
