A 20 year-old law requiring organizations to account for the personal use of company cell phones will likely be repealed following a recent public outcry.
The law, passed in 1989, states that use of an employer-provided cell phone for personal calls is taxable income to the employee. Employees are supposed to keep detailed records of their business calls, including the length of the call and a clear description of its business purpose. If there is no documentation, then 100 percent of the cost of the cell phone is treated as income.
Because of the ubiquitous nature of cell phones and other mobile communications devices today, keeping track of which calls, e-mails, and text messages are business-related is becoming very difficult for employees.
In June 2009, the IRS decided to address the modern-world implications of the law by simplifying it. They issued several proposals for easing the burden, including potentially enforcing a blanket ruling that 25 percent of all employer-provided cell phone expenses be treated as taxable income.
When the IRS asked for public comment on the proposals, the response was overwhelmingly negative. The outcry prompted the IRS to release a statement asking Congress to repeal the existing cell phone tax.
“The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently,” said IRS Commissioner Doug Shulman in a statement to Congress. “Some have incorrectly implied that the IRS is ‘cracking down’ on employee use of employer-provided cell phones. To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals.”
The statement also urges Congress to ensure that businesses and employees understand “that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers.”
Congress is currently working on legislation that would repeal the tax on personal use of an employer-provided cell phone. However, there is no timetable for getting a bill drafted and passed. For now, organizations should play it safe and continue documenting cell phone calls.
