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IRS Revises Approach to Business Cell Phones

September 28th

In the twenty-first century, almost everyone in America seems to have a cell phone. Their use has become especially important to businesses and employees, as a means of constant communication. Some businesses even issue their employees with work cell phones, so that employees may keep in phone contact, check email, and examine documents while away from the office.

Less Oversight Required

However, quite to the disappointment of such institutions, the IRS has, over the past few years, had a strict taxation policy as relates to these cell phones. In fact, until last year, the Internal Revenue Service considered employer-issued cell phones a taxable benefit. This meant that employers who handed out cell phones to their employees had to report the value of each phone as they would income or compensation for other services. In addition, under the same law dating from 1989, employees were also required to keep detailed records of all calls made on employer-issued cell phones. These records needed to pinpoint which calls were for business purposes and which calls were personal.

After an outcry over enforcement efforts in 2009, the IRS laid out more specific rules for the taxation of the personal use of such cell phones. As a result, the IRS released Notice 2009-46, Substantiating Business Use of Employer-Provided Cell Phones, after careful consultation with public opinion.

Now, this year, the IRS has clarified the issue further. Based on feedback, and the 2010 Small Business Jobs Act, the IRS have now taken the position that an employer-issued cell phone is non-taxable to the employee if, and only if, the provided cell phone is bestowed primarily for noncompensatory business reasons.

The IRS has also recently abolished the policy that required employees to keep careful record of cell phone usage in order to ensure they would not accidentally owe, resulting in unpaid taxes. Now, no recordkeeping of business-related cell phone use is required in order for use to be considered tax-free.


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