NTA Blog: Standard mileage deduction rates should be consistent for all taxpayers

I and others have written tomes on the complexity of tax legislation and the burdens that tax law complexity places on taxpayers and the IRS alike. Taxpayers (and tax professionals) often want to tear their hair out, and comedians often scour tax codes for fresh material, especially during tax season.

In my most recent report to Congress, I identified an issue that is a poster child for tax law complexity.

To illustrate the absurdity of the subject, let’s start with an analogy. Have you ever walked into a supermarket to buy a gallon of milk and seen the following sign?

I’ve never seen a sign like this, and I suspect you haven’t either.

However, this is a close analogy to the rules for deducting automobile expenses. One would think that the cost of running a car (ie, fuel plus wear) would be the same regardless of the circumstances. However, the current standard mileage rates used to calculate the deductible expenses of operating a motor vehicle for business, charity, medical transportation, or military relocation purposes are as follows:

There are times when tax professionals analyze the intricacies of seemingly absurd legal distinctions and almost take them for logical – until they have to explain them in plain language to a client.

For the benefit of tax professionals and historians, here are the intricacies that explain how these three tax rates were established. Congress codified the 14-cent standard mileage rate for charitable miles for tax years beginning in 1998 and did not index the inflation rate. In contrast, the IRS has the power to set the standard mileage rate for business purposes annually by adding up the fixed and variable costs of operating a motor vehicle. The IRS also has the authority to set the standard mileage rate for medical transport and military relocation purposes annually based solely on the variable cost of operating a motor vehicle. Alternatively, taxpayers have the option of charging the actual cost of running a car instead of claiming the standard mileage allowance, but that requires a lot of additional record-keeping.

Now try explaining to a client why one rate reflects only variable costs, a second rate reflects both variable and fixed costs, and a third rate was introduced by law 25 years ago and reflects no current costs at all.

Using different tax rates makes little sense and can create confusion for taxpayers, tax professionals, and IRS officials. For example, someone may know the deduction rate for one purpose and, unaware that there are different rates, incorrectly apply that rate for another purpose. In fact, some common-minded self-employed people can claim mileage deductions for both business and charity purposes on the same tax return. Aside from the obvious confusion this can cause, there is an incentive to give more business miles (65.5 cents per mile) and fewer charity miles (14 cents per mile).

Not only does multiple tax rates create confusion, but if a taxpayer accidentally uses the wrong tax rate, they can be subject to a tax adjustment, penalties, and interest charges. This undermines public confidence in the fairness of the tax system. If a motor vehicle is determined to cost a certain amount to operate per mile, the default mileage deduction rate should reflect that cost for all purposes. The existence of three rates of motor vehicle mileage deduction reflects the complex and evolving nature of tax law and the competing interests of different groups and policies. Is this the correct result?

Diploma

Although the mileage deduction rate is a discrete issue, there are many discrete issues like this that make the Internal Revenue Code complex and difficult to understand and apply. While each type of tax deduction serves a unique purpose, a consistent and simplified system would benefit taxpayers, the IRS, and society. By promoting fairness, efficiency and clarity, a simplified tax law would help taxpayers make informed decisions about their finances and contribute to a more stable and prosperous economy.

In the 2023 Purple Book of the National Taxpayer Advocate, I recommended that Congress establish consistent standard mileage rates for business, charitable, medical transportation and military relocation purposes by harmonizing Sections 162, 170(i), 213 and 217 of the Internal Revenue Code – and by indexing inflation rates in future years.

I encourage tax committees and members of Congress to heed this recommendation. I also encourage Congress to review the other 64 impartial, generally non-controversial legislative recommendations I proposed in the Purple Book to strengthen taxpayer rights and improve tax administration.