Paul L. Caron

Thursday, January 22, 2009

Chronicle: University-Provided Laptops Are Taxable to Faculty

I previously blogged that the IRS increasingly is requiring faculty to report the value of university-provided cell phones as income under § 280F.  This week's Chronicle of Higher Education reports that the IRS is similarly targeting faculty who receive a university-provided laptop:  Professors May Have to Pay Taxes on College Laptops, by David Shieh:

Professors lucky enough to get laptops from their institutions may want to watch out — the taxman could come knocking.

Manchester College has announced that employees with university-owned laptops will now have to add those laptops to their tax forms as taxable items. This means a $1,600 laptop with a four-year life expectancy would add $400 per year to an employee’s taxable income ....

At Manchester, the news has caused “significant push back from employees” who want to avoid paying additional taxes. ... “Many want to exchange their laptop for a desktop to avoid the tax liability in the future.” ...

Because university laptops are often used for personal purposes, the IRS counts them as taxable “fringe benefits,” said Bertrand Harding, a tax lawyer specializing in nonprofit institutions, in an interview with The Chronicle. If a college is able to provide documentation showing such laptops were used for business purposes every time they were turned on, it would not have to pay tax on the machines. But few institutions could offer any such proof, Mr. Harding said.

In recent years, the IRS has started to crack down on fringe benefits like laptops and cellphones, and it has asked institutions to pay taxes that were not withheld from employees, Mr. Harding said. This has resulted in an increasing number of colleges — like Manchester — listing laptops as taxable items, Mr. Harding said. “Some colleges just put their heads in the sand and say we’re just going to wait for the IRS to come,” Mr. Harding said. “Others are changing their policies so they don’t get hammered when the IRS comes in.”

Many law schools give faculty a choice between an office desktop computer and a laptop computer.  Faculty concerned about the tax consequences should consider the desktop option (unless they plan on being Treasury Secretary).  For a detailed discussion of these tax rules, see Handling Employee Use of Employer-provided Computers and Cell Phones.  (Hat Tip: Bruce McGovern.)

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Out of curiousity, if an organization be it a university, corporation, non profit etc . . . has a standing technical policy that states: company provided equipment such as laptops, cellphones, smartphones/Blackberry are to be used for business purposes only. Any use of company provided technology for private purposes will require a reimbursement to the company for that service.

And then have an established rate structure that looks at cell phone minutes or history tracking reports for web traffic say on a quarterly basis.

Would such a practice protect organizations from this level of scrutiny and not rile up the staff who currently are using this technology as part of their job requirements? Would be interested to know what others are doing in this area.

Posted by: Michael Sola | Feb 5, 2009 7:11:33 AM

This should go a long way toward closing the $300B tax gap - duh.

Posted by: save_the_rustbelt | Jan 22, 2009 3:24:14 PM