Tuesday, June 9, 2009
Apple yesterday announced its new iPhone 3G S. Also yesterday, the IRS announced that it was considering new rules that would allow your employer to give you one on a tax-free basis.
I previously blogged the draconian rule of § 280F that employers must include in an employee's W-2 income the value of employer-provided cell phones unless the employee satisfies onerous substantiation rules. Over the past few years, the IRS has increasingly raised this issue on audit, with the result that many employers, including universities, responded by no longer providing cell phones to employees (including professors).
In Notice 2009-46, the IRS requested comments on three alternative methods to simplify the substantiation rules for employer-provided cell phones:
- Minimal Personal Use Method
- The entire amount of an employee’s use of an employer-provided cell phone would be deemed to be for business purposes if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee’s work hours.
- Alternatively, the second proposal would define a specified amount or type of “minimal” personal use that would be disregarded in determining the amount of personal use of an employer-provided cell phone. For example, “minimal” could be defined by reference to a particular number of minutes of use or for certain personal purposes.
- Safe Harbor Substantiation Method. The IRS and Treasury Department are considering a safe harbor method under which an employer would treat a certain percentage of each employee’s use of an employer-provided cell phone as business usage. The remaining percentage of use would be deemed to be for personal purposes. For this proposal, the IRS and Treasury Department propose a business use percentage of 75 percent.
- Statistical Sampling Method. The IRS and Treasury Department are considering a proposal that would allow employers to use statistical sampling techniques to measure an employee’s personal use of an employer-provided cell phone. In general, an employer could use an approved statistical sampling methodology similar to that provided in Rev. Proc. 2004–29, 2004–1 C.B. 918, to determine the percentage of personal use of employer-provided cell phones. The employer would multiply that percentage times the value of each employee’s total usage to determine the value of personal usage. The remaining portion of the employee’s usage would be deemed to be for business purposes.
Press and blogosphere coverage:
Prior TaxProf Blog posts:
- Bill Would Liberalize Tax Treatment of Employer-Provided Cell Phones (2/15/08)
- Proposed Bill Would Allow Tax-Free Employee Cell-Phone Use (8/5/08)
- More on the Tax Treatment of Employer-Provided Cell Phones (8/15/08)
- University-Provided Laptops and Cell Phones Are Taxable to Faculty (1/22/09)