TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, August 15, 2008

More on the Tax Treatment of Employer-Provided Cell Phones

I recently blogged (here and here) the outdated tax rule that requires employers to report the value of a cell phone as income on an employee's W-2 unless the employee satisfies onerous substantiation rules.  NPR ran a piece on the subject today:  IRS Taxes Personal Calls On Work Cell Phones, by Karen Grigsby Bates:

The government doesn't have a problem with people using the company phone to make personal calls, provided the individual or the company pays the appropriate taxes on such calls.

And that's the problem. To do that, says Michael O'Neill, manager for tax and payroll services for the University of California system, each cell user would have to submit documentation for every single call and indicate which ones were personal, so a tax determination could be made. "The rules are really unworkable, unreasonable and burdensome," O'Neill says. "The IRS realized that most employers aren't following those rules." ...

In 2007, during a routine payroll audit of UCLA, the IRS slapped the university with a bill for almost $240,000 in back taxes because it couldn't show how each phone had been used. O'Neill says the university is now considering issuing voucher payments to all employees who need a cell phone, so that they can purchase one. This would become a taxable benefit that the employee must declare. "And that way, the tax burden shifts to the employee, and the university has no exposure, because we're giving the employee additional wages to go out and buy their own phone," says O'Neill.

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