Why Does the IRS Care About Your Employees' Cell Phone or Blackberry?

Would the IRS consider taxing an employer-provided cell phone or blackberry as a fringe benefit? If an employee uses it at all for personal contacts each day (for example: calls, emails, texting, or the Internet) that may well be the case. As Congressmen Sam Johnson (R-TX) and Earl Pomeroy (D-ND) pointed out in a recent “Dear Colleague” letter, “the IRS reminded field examiners of the substantiation rules for cell phones as ‘listed property’ under Code Section 280F9(d)(4) when it published the IRS ‘Audit Techniques Guide on Executive Compensation and Fringe Benefits. Employers caught without cell phone logs face added taxes and penalties during audits, so many are maintaining expensive and detailed logs just for tax purposes.”

As Johnson and Pomeroy also pointed out in the letter, this outdated practice started in 1989 before cell phones and communication devices became a part of the daily lives of millions of Americans. The law requires “detailed documentation showing that a cell phone is used for business more than 50 percent of the time for it to be nontaxable to the employee,” according to the Dear Colleague letter.

Today, Johnson and Pomeroy introduced a bill that would repeal the requirement that employers maintain detailed logs of cell phone use. Being that there are 253 million or more wireless consumers (many who get their wireless device from their employer), the bill would certainly reduce the massive paperwork burden on small employers.