How to Follow IRS Regs in the Meantime
Cell Tax Bill Resurfaces in Senate
Jan. 29, 2009 (Vol. 30, No. 3)
Still on the wrong side of the IRS’ corporate cell phone requirements? Good news: Democratic Sen. John Kerry of Massachusetts introduced legislation Jan. 6 that aims to repeal the current regulations, so enterprise end users would no longer be required to log their personal usage of corporate-owned devices.
But don’t get too comfortable in your noncompliance just yet: Similar bills introduced last February sat in the House and Senate for nearly a year and were never acted upon [VR 1/15/09].
The IRS designated cell phones as “listed property” in 1989, adding them to a catalog that includes items like cars, computers and cameras that can be issued by a business but used for personal purposes [See IRS tax code 280F(d)(4)(A)(v)]. Employers are required to include the value of personal usage of listed property as taxable income on employees’ W2s.
Voice Report looks at this new effort to change the IRS rules, and what you should do in the meantime.
A ‘Time-Consuming, Archaic Requirement’
The inclusion of cell phones as listed property might have made sense two decades ago, but most believe the rules are severely outdated.
“Back in 1989, cell phone technology was an expensive technology worthy of detailed log sheets,” Kerry said when introducing the bill. “Cell phones are no longer viewed as an executive perk or a luxury item.”
In a report compiled by the Internal Revenue Service’s Advisory Committee on Tax Exempt and Government Entities (ACT), detailing a public meeting June 11, the ACT cites government employees calling the rules a “time-consuming, archaic requirement” and “a nightmare.” “We do not have staff to sift through cell phone bills and try to determine what is business and what is personal,” one employee said.
The ACT concluded that the law should be changed, as there is a “presumption of primary business use when a cell phone is provided to an employee.” Just as an employee is permitted to make infrequent use of his office phone for personal reasons without being subject to taxation, he or she should be able to make the same judgment on personal calls, the ACT says.
As if that weren’t a good enough argument, most mobile plans purchased by enterprises have either unlimited minutes or at least unlimited night and weekend minutes, notes Steve Ornstein, director of networking and telecom at Frostburg State University in western Maryland. It doesn’t even necessarily cost the enterprise extra money for end users to make occasional personal calls.
A Question of Timing
So what are the chances that this new legislation will pass? The bill, S.144, titled “Modernize Our Bookkeeping In the Law for Employee’s Cell Phone Act of 2009,” enjoys bi-partisan support, says Michael Lloyd, counsel specializing in tax and employee benefits at Washington, D.C.-based Miller & Chevalier. He is hopeful that it will become law.
“I don’t know of anyone who opposed the last bill,” says Mark Gerson, former counsel to the House Ways & Means Committee. Indeed, Kerry states in his floor speech that 60 senators cosponsored the 2008 version of the legislation.
The problem is that S.144 is a small bill that needs to be attached to a larger one in order to pass, Gerson explains. It also is not a top priority for the new Senate and House. “First will come stimulus packages, then regular tax legislation, then this type of legislation,” he says. “It’s a question of timing.”
What we don’t know is which legislative vehicle Congress will attach it to and when it will be passed by both houses, Lloyd adds.
3 Compliance Strategies
Ornstein’s department hopes that the legislation will pass soon so that the school avoids the time-consuming process of switching its corporate-liable devices to personally owned phones.
However, even if the law changes soon, it will not immediately go into effect, says Gary Eckert, president of Carlsbad, Calif.-based Telytics Inc. “Prior to the date specified [in the legislation], companies will still be subject to audits,” he adds. Eckert recommends making yourself compliant now rather than holding out for the bill to pass.
Make sure your enterprise is employing one of these three strategies suggested by telecom attorney Martha Buyer, of the Law Offices of Martha Buyer, in East Aurora, N.Y., to comply with the IRS rules:
• Here’s what Buyer considers the safest and most effective solution: Don’t provide corporate-owned cell phones to end users; simply reimburse them for business calls. Though this method requires some management, it frees the enterprise from corporate liability, Buyer explains.
• Institute a policy to ban personal calls on corporate devices. However, it is near impossible to ensure compliance with this ban, and this method essentially forces end users to carry two phones, Buyer says.
• The most tedious option: Require users keep logs to substantiate their personal usage. These logs must document the time, duration and purpose of the call, as well as the number dialed and the user’s relationship to the person receiving or placing the call. The end user would need to calculate and add the value of that usage to their W2s, which is a “huge pain,” Buyer says.
There is no other legal solution, she says. Until the law is changed, you can either require end users to fund their own devices or absorb the documentation burden. (