The IRS has given up on its proposals to simplify how personal use of employer-provided cell phones is taxed.
Congress 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)]. Employees are required to log their personal usage of corporate mobile phones so their employers can include the value of that personal usage as taxable income on employees’ W2s.
Enterprises don’t have an easy time complying with the law. Some have transitioned their corporate-owned cell phones to personal-liable devices to avoid the documentation required under the current law. Others have evaluated stipends and policy changes in order to comply.
3 Calculation Methods Scrapped
The IRS in June proposed three optional calculation methods to reduce the burden of documenting and calculating how much employees owe for their personal use [VR 6-18-09].
The first would deem the entire amount of employees’ use of corporate cell phones as business use if employees could provide records to prove they have and use a non-employer-provided cell phone for personal purposes during work hours.
The second, dubbed the “safe harbor” proposal, would instruct enterprises to assume 25% of end users’ usage is personal.
The final proposal would allow enterprises to multiply a percentage (generated by an IRS-approved statistical sampling technique) by the value of each employee’s total usage to estimate the value of personal usage.
Experts interviewed by Voice Report criticized the proposals as burdensome and pointed out that they might encourage more employee abuse of corporate-owned mobile phones.
IRS Commissioner Doug Shulman indicated on the Jan. 8 episode of C-SPAN’s Newsmakers program that the IRS isn’t going to turn those proposals into official policy.
“We’re quite hopeful Congress is going to act on this,” Shulman said in response to a question about the status of the proposals from Martin Vaughan, Dow Jones tax and economic policy reporter. “In the meantime, we’re not doing anything special or moving forward with any initiatives.” (Fast-forward to minute 24:08 on the video at www.c-spanvideo.org/program/291155-1)
The move might be good news for enterprises; Congress’ initiatives aim to eliminate the taxation entirely.
Bills Stuck in Committees
Shulman’s hopes that Congress will “clean this up” rest on bills in the Senate (S.144) and the House (H.R.690) that would remove the “listed property” designation from corporate cell phones and therefore make personal usage not taxable.
The Senate version has the support of 70 cosponsors but has sat in the Senate Committee on Finance since it was introduced in January 2009. The House bill – with 175 cosponsors – also stalled in the House Committee on Ways and Means after it was introduced a year ago.
Steve Largent, president and CEO of wireless industry association CTIA, believes shelving the proposals is progress.
“The existing rule is an anachronism and it can’t be saved simply by giving it a facelift,” Largent says in a statement responding to Shulman’s C-SPAN interview. “It is our hope that Congress act soon to help employers and employees alike by repealing this absurd, outdated rule.” (