The IRS says it is looking to make it easier for taxpayers to comply with recordkeeping requirements for employer-provided cell phones. Others see this as another attack on small business. A new notice from the IRS confirms several IRS proposals to simplify the procedures under which employers substantiate an employee’s business use of employer-provided cellphones. The notice also requests suggestions for alternative approaches.
In 2008, two identical bills-H.R. 5450 and S. 2668, both entitled “Modernize Our Bookkeeping In the Law for Employee’s Cell Phone Act of 2008″-were introduced in the House and Senate to remove cell phones and similar telecommunications equipment from the category of listed property. These measures, which had bipartisan support, and were backed by a number of companies and business associations, were never enacted. Perhaps that is why IRS is taking the matter into its own hands.
Under Internal Revenue Code Section 132, an employee may exclude from gross income the business use of an employer-provided cell phone as a working condition fringe benefit. However, because cell phones are listed property in Code Section 280F, strict substantiation requirements must be satisfied for business cell phone usage to qualify for the code Section 132 exclusion. Moreover, any personal usage of an employer-provided cell phone is a taxable fringe benefit. Thus, the current rules require documentation of the business and personal use of the cell phone.