Despite the Internal Revenue Service’s recent efforts to simplify compliance with employer-provided cell phone rules, the agency’s Commissioner, Doug Shulman, has found a better way to solve the problem.
“[T]here will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers,” he said in statement posted on IRS’ Web site.
He adds that the current law, which requires employers to include in employees’ gross income the value of the personal use of employer-provided cell phones, is “burdensome, poorly understood by taxpayers and difficult for the IRS to administer correctly.”
He’s asked Congress to take action because the “passage of time, advances in technology and the nature of communication in the modern workplace have rendered this law obsolete.”
What else is new
Meanwhile, just days before Schulman’s announcement, IRS issued a notice asking for comments on several proposals that would simplify the substantiation procedures on an employee’s business use of employer-provided cell phones.
Some believe that the IRS notice was intended to draw attention to the administrative difficulties raised by the current law, which could be resolved by Congressional action.
Here are the three methods IRS suggests in its notice:
1. Minimal Personal Use Method – Employers would count all of an employee’s cell phone usage as business related. There are two different ideas being tossed around:
- Companies could count the entire amount as business use if the employee provides the employer with records establishing that he or she has a personal (nonemployer-provided) cell phone for personal use during work hours, or
- An employer could disregard a specified amount or type of “minimal” personal use to determine the amount of personal use. For example, “minimal” might be defined by a particular number of minutes or use for certain personal purposes.
2. Safe Harbor Substantiation Method – Companies could treat a certain percentage of each employee’s use as business usage. The remaining percentage would be counted as personal purposes. IRS and the Treasury Department are proposing a business use of 75%.
3. Statistical Sampling Method – Employers could use IRS-approved statistical sampling techniques to measure personal use. The company would multiply a percentage times the value of each employee’s total usage to determine personal use. The remaining portion of the employee’s usage would be counted for business purposes.
Of course there always has to be some fine print. The IRS Notice adds that employers using a simplified cell phone substantiation method will be required to:
- implement a written policy that: a) requires employees to carry and use the phones for work purposes, and b) prohibits personal use of the phones, except for “minimal personal use” (similar to the requirements applicable to employer-provided automobiles in Internal Revenue Code Section 1.274-6T), and
- reasonably believe that the cell phone is not used for personal purposes, except for minimal personal use.
Employers have until September to send IRS comments on its proposals. It’s unclear, though, whether Congress will respond to Shulman’s request and take any action. We’ll keep you posted.
