Tax requirements and business cell phone use

Thompson.com ^ | October 2006 | By Marianna G. Dyson and Michael M. Lloyd

[Jotmo]

By Marianna G. Dyson and Michael M. Lloyd From the October 2006 edition of Thompson's Employer's Guide to Fringe Benefits Rules

In the past 17 years, the number of cellular telephone users in the U.S. has skyrocketed. No longer resembling suitcases or hardwired into automobiles, people transport them in handbags, clipped to belts and in pockets. Many cell phones now resemble Star Trek communicators while others resemble miniature computers (e.g., Blackberry devices). In fact, technology has evolved to such a degree that most cell phones now tout features such as global positioning systems (GPS), Internet access, cameras, email and MP3 players. Cell phone use has become so engrained in daily business that even IRS personnel use them in their daily jobs.

Unfortunately, federal tax rules have failed to keep pace with the business use of cell phones. In April 2005, the IRS issued an indirect reminder of the inconvenient substantiation rules applicable to providing employees with the phones or reimbursing employees for their use. The reminder was part of the IRS "Audit Techniques Guide on Executive Compensation and Fringe Benefits," which reminds IRS field examiners that cell phones (or other similar telecommunications equipment) constitute "listed property" under Code Section 280F(d)(4)(A)(v). (See ¶462 of the Employer's Guide to Fringe Benefits Rules for more on cell phones and the substantiation rules applicable to them.)

Accordingly, employers must document employee business usage in order to deduct the purchase and operational costs of the phones and to exclude the value of their business use from employee income as working condition fringe benefits under Section 132(d) or reimbursements under the accountable plan rules of Section 62(c). (See ¶400, App. A and ¶741, respectively, for more on working condition fringe benefits, Section 132 and accountable plans.)

[Jotmo]

I didn't want to post a vanity, and this is the most recent article I can find on the subject.

My company has recently changed it cell phone policy. Previously we paid $6 a month for our company cell phone so we could use them for "occasional" personal use.

They now charge us $20 a month, but say we have unlimited personal use.

Now I've never paid much attention to what ratio I use it personally or for business, and no one has ever complained. So the new policy will only have the effect of costing me an additional $14 a month or so.

I've been told the reason for this is that the IRS is cracking down on this, and will be taxing individuals for company cell phone use as income to the employee if the company is paying for it. Rather than listing it on our W2's as income, they're just going to charge us, and therefore there's no benefit since I'm paying for it.

But is thats the case, shouldn't I now own the phone? I'm required to have a cell phone, we still have to use the company approved phone, and have to use the service they give us. Does this make sense to anyone?

I don't wish to sound like I'm complaining about a cell phone I can use anywhere in the world, talk as much as I want, and only pay $20 a month. That's a pretty good deal. The hole "its a taxable benefit" routine from the IRS is what's got me. It just doesn't seem to jive if I'm required to have one.

So I'm curious if anyone else has had their employer make this change as well.

[leapfrog0202]

Until this week we provided our own cell phones (I’m field based and the corporate office is across the country) which I used for business & personal use. The company paid up to a certain $ amount with copies of our cell bill.

This week thye’ve begun the process of transitioning us to company provided cell phones. I was just informed that this unit can be also used for personal calls, but nothing was mentioned about possibly being taxed on that.

My company was quick to inform us that we’d be taxed on personal mileage driven on the company provided car, so I would think they’d have informed us. I will try to find out and then we’ll both know!

Thanks for posting this - I never thought of tax implications!

[citizenK]

The company I work at also recently changed the cell phone policy, and charges $15 per month. It does not personally affect me, but I am galled at the concept that the company issued cell phone is a “benefit” that is taxable.

It is a benefit to essentially be on call 24/7 - or to have the expectation to take business calls outside the “normal” work day?

Any new angle to part working people from the money they earn; only a complete government jackass would consider a company cell phone (and the associated responsibility) as a benefit.

[Jotmo]

Thats exactly what has me so steamed about this.

I travel most of the time so I have a cell phone because it's a necessity for performing my job.

The only way out of this for the company was this policy, of mandating that we make NO personal calls on our cell phone. This means I'd have to carry another personal cell for contacting my family when on the road.

So why isn't an office phone, where I will receive and make personal calls, a taxable benefit as well? The nature of my job dictates that my cell IS my office phone. So what's the difference?

Oops. I'd better zip it before I give the IRS any ideas.