Employee Cell Phones: IRS Issues Tax Guidance

Employers and employees across the country breathed a collective sigh of relief last week when the Internal Revenue Service released Notice 2011-72, reversing its position on the tax treatment of employer-provided cell phones: 

On September 14, 2011, the Internal Revenue Service (IRS) issued guidance indicating that employers can provide cell phones and similar telecommunications equipment to employees on a nontaxable basis, as long as the devices are provided primarily for noncompensatory business reasons. In recent years, the tax treatment of such devices was uncertain, and before 2009, the IRS had generally viewed the personal portion of employer-provided cell phone usage as taxable…

Not surprisingly, we’re seeing growing interest in the IRS guidance and what it means for employers and employees. From leading law firms on JD Supra: 

Relief For Employees and Employers – IRS Issues Guidance on Taxation of Employer-Provided Cell Phones (Armstrong Teasdale LLP):

On September 14, 2011, the IRS issued long-awaited guidance on the taxation of employer-provided cell phones that will give many employers and employees reason to celebrate—by making personal phone calls on their employer-provided cell phones. … An employer will be considered to have provided an employee with a cell phone primarily for non-compensatory business purposes if there are substantial business reasons, other than providing compensation to the employee, for providing the employee with a cell phone.” Read more»

IRS Pulls the Plug on Efforts to Tax Employer-Provided Cell Phones (Sutherland Asbill & Brennan LLP):

“The IRS also issued a Memorandum to its examiners, announcing that a similar analysis applies with respect to employer reimbursements for cell phone expenses where the employer requires, for substantial noncompensatory business reasons, that the employee maintain and use their personal cell phone for business reasons.” Read more»

IRS Issues Guidance Permitting Tax-Free Treatment of Employer-Provided Cell Phones and PDAs (Morgan Lewis):

“Cell phones provided for personal reasons (or that are primarily used for personal reasons) are not exempt from the normal recordkeeping requirements necessary to exclude business-related use from the employee’s income as a working condition fringe benefit. To the extent no records are kept, such employer-provided cell phones are generally taxable.” Read more»

Employer-Provided Cell Phones May Generally Be Treated as Nontaxable Fringe (McDermott Will & Emery):

“Employers that provide or pay for cell phones or other telecommunications equipment for employees should be sure to document the substantial business reasons for providing doing so. That rationale should be assessed to ensure it makes it sufficiently clear that the telecommunications equipment is provided primarily for noncompensatory business purposes.” Read more»

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