IRS boosts business mileage deduction

WASHINGTON - Amid calls for relief from rising gas prices, the Internal Revenue Service announced an 8-cent increase Monday in the automobile mileage rate that taxpayers can claim for business and other types of travel.

The move, urged by Minnesota Sen. Norm Coleman and others in Congress, comes as election season heats up and the two major-party presidential candidates vie to score points with competing energy proposals.

The new rate, beginning July 1, will increase the deduction for business miles from 50.5 cents to 58.5 cents a mile. A similar 8-cent increase will apply for the use of an automobile for medical or moving purposes, although not for charitable deductions. The charitable rate is set by Congress, not the IRS.

The IRS normally updates mileage rates each fall for the following calendar year. The last time the agency adjusted the rate midyear was in 2005, after Hurricane Katrina led to a nationwide spike in gasoline prices.

"Rising gas prices are having a major impact on individual Americans," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

The IRS decision was promoted strongly by Coleman, a Republican facing a nationally watched Senate challenge from DFL candidate Al Franken, a comedian and satirist. Coleman had pressed for the increase a June 11 letter to Shulman, as well as in a subsequent phone call.

"This is not a cure-all," Coleman said in an interview Monday. "But it takes the pressure off. ... This is one where every little bit helps, because people are hurting." His office took at least partial credit for the IRS move in a news release saying that the higher rate came "per Coleman's request."

IRS spokeswoman Nancy Mathis termed it "an IRS decision, just as every mileage decision is. We did have input from a number of concerned parties, and Sen. Coleman was one of them."

Unlike the federal gasoline tax "holiday" that had been proposed by some lawmakers in Washington, the IRS deduction increase will not help all motorists get through the peak summer travel season.

But Coleman said it will provide a "measure of relief" for those who incur significant driving costs for medical, moving or business reasons. The IRS rate also is used as a benchmark by the federal government and many businesses to reimburse employees for mileage.

Active debate on energy

Fueled by rising gasoline prices, Democrats and Republicans in Congress have tangled over a variety of energy measures this month, including Bush administration proposals to drill for new oil and gas deposits offshore and in the Arctic National Wildlife Refuge.

Financial speculation in the oil markets has emerged as a new target in Congress, particularly for Democratic lawmakers such as Sen. Amy Klobuchar of Minnesota, who met with business leaders in Minneapolis on Monday to address the issue.

McCain, who also supports a $300 million government prize to whoever can develop a better automobile battery, released a statement Monday applauding the IRS's new business mileage rates.

The Obama campaign did not respond to a request for comment.