Friday, October 7, 2011
New Guidance on Taxation of Cell Phones
Posted by John Panetta
The IRS recently issued long-awaited guidance on the tax treatment of cell phones provided by employers. After the Small Business Jobs Act of 2010 removed cell phones from the definition of listed property, the IRS issued Notice 2011-72 explaining that for years beginning after December 31, 2009 cell phone usage will not be taxable, provided an employer has substantial business reasons for providing its employees with phones. Such usage will be treated as a nontaxable de minimis working-condition fringe benefit.
In order to qualify as an excludable working-condition fringe benefit, the employer must be able to document that substantial business reasons exist for providing employees with the cell phones. Examples of substantial business reasons include (1) the ability to reach the employee at all times for work-related emergencies; (2) the need to contact clients at times when the employee is away from the office; and (3) the need for the employee to use the cell phone to speak to clients in other time zones before and after work hours. Proper documentation of the noncompensatory business purpose should be maintained and related language may be included in employment contracts, job descriptions, and personnel manuals.
Please note, cell phones provided to improve employee morale or to provide additional compensation will not quality as an excludable working-condition fringe benefit. For further questions regarding the taxability of cell phones, please consult your tax advisor.
John has more than 30 years of experience providing tax-exempt organizations with a wide variety of tax, business and consulting services including income tax planning, IRS/state tax audit representation, intermediate sanctions planning and compliance, reorganization planning and consulting, unrelated business tax planning, assistance with legislative activity, multi-corporate transaction planning, and private foundation domestic and foreign expenditure planning. John joined the firm from Burr Pilger Mayer. Previously, he led the Western Area Exempt Organizations Tax Practice for both PWC and KPMG. He has also served with the Exempt Organizations Branch of the IRS National Office.