WSJ: IRS Targets Employer-Provided Cell Phones

Following up on Tuesday's post, today's Wall Street Journal has a front-page story, Tax Man's Target: The Mobile Phone:

The use of company-issued mobile phones could trigger new federal income taxes on millions of Americans as a "fringe benefit."

The IRS proposed employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

The IRS, in a notice issued this week, said employees could avoid tax liability if they showed proof they used personal cellphones for nonbusiness calls during work hours. The agency also could decide on a set number of phone minutes as "minimal personal use" that would be untaxed. ...

The IRS move, which is spurring efforts by the wireless industry and others to kill the idea, would mark a stricter enforcement of an existing rule that classifies employer-provided cellphones as a taxable benefit, rather than a 24-hour-a-day work tool. ...

Wireless companies also argue the IRS rule is outdated. Rates have declined so dramatically in the past decade -- with night and weekend calls free under many plans -- that it makes little sense for the IRS to assess employee benefits by nickels and dimes. "This is a regulation from a bygone time, dating back to the infancy of the cellphone business, and it is in desperate need of updating," said Howard Woolley, a senior vice president with Verizon Wireless. ...

Such companies as Verizon and Sprint Nextel Corp. are backing congressional proposals to repeal the tax. They are supported by local government, education and farm groups. ...

The 1989 law requires that company-provided wireless services be included in a worker's gross income -- unless the employee keeps detailed records showing the device was used only for work. Following one IRS audit, the University of California system owed additional payroll taxes because it couldn't substantiate that employees' cellphone use was solely work-related.

   

• National Review:  IRS Weighs Rules for Taxing Private Use of Work Cellphones
• Washington Post:  IRS Seeks to Simplify Workers' Cellphone Tax Law

Of course, computers are also listed property under § 280F, so one wonders whether the IRS next will target employees' personal use of computers provided by their employers.