New Table for Determining Lesee's Income Amount for Autos First Placed in Service in 1989 -- Temporaryl Regs Under Section 280F

 [4380-01]

 ACTION: Temporary regulations.

 SUMMARY: This document contains temporary regulations providing for adjustments in the table used to determine the amount included in the income of a lessee of a passenger automobile. The tax law applicable to automobiles placed in service after 1988 requires annual adjustments in the table to reflect automobile price inflation. The temporary regulations affect persons who lease passenger automobiles after December 31, 1986.

 EFFECTIVE DATE: These regulations are effective after December 31, 1986, and apply to passenger automobiles that are first leased after December 31, 1986.

 FOR FURTHER INFORMATION CONTACT: John E. Moffat 202-566-3553 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

NEED FOR TEMPORARY REGULATIONS

There is a need for immediate guidance with respect to the provisions contained in this Treasury decision. It is therefore found impractical and contrary to the public interest to issue this Treasury decision with notice and public procedure under section 553(b) of Title 5 of the United States Code or subject to the effective date limitations of section 553(d) of Title 5, United States Code.

EXPLANATION OF PROVISIONS

 Section 280F(c) of the Code requires a reduction in the deduction allowed to the lessee of an automobile. This reduction must be substantially equivalent to the limitations on the depreciation deductions imposed on owners of automobiles. For automobiles first leased in calendar years 1987 and 1988, this reduction is accomplished by including in gross income an amount determined by applying a formula to the amount obtained from the table in section 1.280F-7T(a)(2)(iv) of the temporary Income Tax Regulations published in the Federal Register of August 9, 1988, 53 Fed. Reg. 29880.

 In the case of automobiles placed in service after 1988, section 280F(d)(7) provides that the dollar amount allowable as a depreciation deduction is increased by an automobile price inflation adjustment. Because of the changes in the depreciation limitations attributable to the required automobile price inflation adjustment, the inclusion amounts determined by using the table in the regulations are not substantially equivalent to the limitations on the depreciation deductions applicable to automobiles placed in service after 1988. Thus, the temporary regulations provide that table in section 280F-7T(a) applies only to automobiles first leased in 1987 or 1988, and authorize the future issuance of a new table whenever an automobile price inflation adjustment changes the depreciation limitations. The table will be published in the Internal Revenue Bulletin.

 Lessees should compute the inclusion amount in the manner prescribed in section 1.280F-7T(a), using the table applicable to the calendar year when the automobile is first leased. Thus, for an automobile first leased in the 1987 or 1988 calendar year, the lessee should determine the amount to be added to gross income by using the table included in section 1.280F-7T(a)(2) of the regulations. For an automobile first leased in a later calendar year, the inclusion amount is computed by using a table published in the Internal Revenue Bulletin.

SPECIAL ANALYSES

 It has been determined that these rules are not major rules as defined in Executive Order 12291. Therefore, a Regulatory Impact Analysis is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. Chapter 5) and the Regulatory Flexibility Act (5 U.S.C. Chapter 6) do not apply to these regulations, and, therefore, a final Regulatory Flexibility Analysis is not required. Pursuant to section 7805(f) of the Internal Revenue Code, the notice of the proposed rulemaking for the regulations was submitted to the Administrator of the Small Business Administration for comment on their impact on small business.

DRAFTING INFORMATION

 The principal author of these temporary regulations is John E. Moffat of the Office of Chief Counsel (Passthroughs and Special Industries), Internal Revenue Service. However, personnel from other offices of the Internal Revenue Service and Treasury Department participated in developing the regulations on matters of both substance and style.

LIST OF SUBJECTS IN 26 CFR 1.61-1 - 1.281-4

 Deductions, Exemptions, Income taxes, Taxable income.

Treasury Decision 8298

ADOPTION OF AMENDMENTS TO THE REGULATIONS

For the reasons set out in the preamble, Title 26, Chapter I, Part 1 of the Code of Federal Regulations is amended as follows:

PART 1 -- INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1953

Paragraph 1. The authority for Part 1 continues to read in part:

Authority: 26 U.S.C. 7805. * * * Section 1.280F-7T also issued under 26 U.S.C. 280F(c). * * *

Par. 2. Section 1.280F-7T is amended by revising paragraph (a)(2)(i) and (ii) and the text preceding the table in paragraph (a)(2)(iv) and by adding a heading to the table in paragraph (a)(2)(iv) and a new paragraph (a)(2)(v). The revised and added provisions read as follows:

SECTION 1.280F-7T PROPERTY LEASED AFTER DECEMBER 31, 1986 (TEMPORARY).

(a) * * *

(2) * * *

(i) For the appropriate range of fair market values in the applicable table, select the dollar amount from the column for the taxable year in which the automobile is used under the lease (but for the last taxable year during any lease that does not begin and end in the same taxable year, use the dollar amount for the PRECEDING taxable year).

(ii) Prorate the dollar amount for the number of days of the lease term included in the taxable year.

* * * * *

(iv) The following table is the applicable table in the case of a passenger automobile leased after December 31, 1986, and before January 1, 1989:

DOLLAR AMOUNTS FOR AUTOMOBILES WITH A LEASE TERM BEGINNING IN CALENDAR YEAR 1987 OR 1988 * * *

(v) The applicable table in the case of a passenger automobile first leased after December 31, 1988, will be contained in a revenue ruling or revenue procedure published in the Internal Revenue Bulletin.

* * * * *