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Friday, February 15, 2008

Bill Would Liberalize Tax Treatment of Employer-Provided Cell Phones

Cell_phone_3 It is no secret that in many ways the Tax Code is ill-suited to the 21st Century American economy.  One small example is the tax treatment of employer-provided cell phones.  Because cell phones are treated as "listed property" under § 280F, an employer must report the value of a cell phone as income on an employee's W-2 unless the employee satisfies onerous substantiation rules.  In 2005, the IRS confirmed this tax treatment of employer-provided cell phones.  There is anecdotal evidence that IRS agents continue to raise the issue on audit, and employers are responding by no longer providing cell phones to employees and instead giving them a taxable cell phone allowance to avoid the substantiation rules.

Although these rules may have made sense when they were enacted in 1989, given cell phones' size, cost, and limited business use, they make no sense today in light of the vast changes in the size, pricing, and ubiquity of cell phones.    Representative Johnson yesterday introduced H.R. 5450, the Modernize Our Bookkeeping In the Law for Employee's Cell Phone Act of 2008, which would remove cell phones from the definition of listed property in § 280F(d)(4).

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