Final Regs Modify Substantiation Rules for Certain Emergency-Use Vehicles

(Parker Tax Publishing April 2026)

The IRS issued final regulations relating to the definition of qualified nonpersonal use vehicles, which are excepted from the substantiation requirements that apply to certain listed property under Code Sec. 274(d). The final regulations add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew as a new type of qualified nonpersonal use vehicle. T.D. 10043.

Background

Under Code Sec. 274(d), a taxpayer cannot take a deduction or credit for certain expenses unless the expenses are substantiated by adequate records or by sufficient evidence corroborating the taxpayer's own statement as to the amount, time and place, business purposes of the expenditure, and the business relationship to the taxpayer of the person receiving the benefit. These substantiation requirements apply to expenses incurred in the use of any listed property, as defined in Code Sec. 280F(d)(4), which includes any passenger automobile, and any other property used as a means of transportation. However, Code Sec. 274(d) also provides that qualified nonpersonal use vehicles are exception from these substantiation requirements. Code Sec. 274(i) defines a qualified nonpersonal use vehicle as one which, by reason of its nature, is not likely to be used more than a de minimis amount for personal purposes.

Current regulations under Code Sec. 274 define qualified nonpersonal use vehicles to include clearly marked police, fire, or public safety officer vehicles that are owned or leased by a governmental unit and required to be used for commuting by a police officer, firefighter, or public safety officer who, when not on a regular shift, is on call at all times. The current regulations also define qualified nonpersonal use vehicles as including unmarked law enforcement vehicles owned or leased by federal, state, county, or local governmental agencies or departments that officially authorize the business and personal use of the vehicle by law enforcement officers whom they employ, provided any personal use is incidental to law enforcement functions.

The current regulations do not include unmarked vehicles used by firefighters, members of rescue squads, or ambulance crews in the definition of qualified nonpersonal use vehicles. Historically, firefighters and rescue squad and ambulance crew members were provided with vehicles that had markings to indicate their status as emergency response vehicles. More recently, however, the IRS has become aware that some governmental units are assigning these emergency responders unmarked vehicles due to increased incidents of harassment of first responders and vandalism of clearly marked fire and emergency vehicles and equipment.

The use of unmarked vehicles allows firefighters and other emergency personnel who commute and are required to be on call at all times, even when not on a regular shift, to travel inconspicuously, thereby reducing risk of harassment and vandalism. Also, unmarked firefighter and rescue squad or ambulance crew vehicles typically are specially outfitted with onboard equipment, which is used by firefighters and emergency personnel to suppress fires, conduct rescue activities, or provide emergency medical services as part of an official emergency response system. According to the IRS, because these vehicles are generally specially outfitted with such equipment, any personal use of these vehicles is likely to be minimal. Thus, the IRS determined that adding unmarked firefighter, rescue squad or ambulance crew vehicles as a new category of qualified nonpersonal use vehicle in the regulations is consistent with the underlying intent of Code Sec. 274(i).

In December of 2024, the IRS published REG-106595-22 which sets forth proposed regulations relating to the definition of qualified nonpersonal use vehicles that are excepted from the substantiation requirements that apply to certain listed property. The proposed regulations proposed amending Reg. Sec. 1.274-5(k)(2)(ii) to add unmarked vehicles used by firefighters or members of a rescue squad or ambulance crew to the list of qualified nonpersonal use vehicles that are exempt from the substantiation requirements of Code Sec. 274(d). The proposed regulations also proposed to add a new Reg. Sec. 1.274-5(k)(7) providing definitions for the terms "unmarked firefighter, rescue squad or ambulance crew vehicles", "firefighter," and "member of a rescue squad or ambulance crew," and proposed adding an example illustrating the new provision.

T.D. 10043

On March 20, the IRS published final regulations that adopt all of the provisions of the proposed regulations with some minor, non-substantive changes to certain provisions. The final regulations apply to tax years ending on or after March 20, 2026.

For a discussion of the exclusion from income for working condition fringe benefits, see Parker Tax ¶123,130.

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