Q. Would this pass muster with IRS?
A. No, not without detailed accounting.
If the corporation allows personal use of the vehicle, it is required to impute a value for that use and report it as taxable income on her W-2. To reimburse her for cost would also require detailed accounting (an accountable plan), separating business and personal percentage. You cannot just pay her 58 cents a mile, without reporting that as income to her. Yes, you can claim depreciation on the car, but the personal use portion has to be adjusted for (somehow included in the imputed value).
