IRS seeks comments: employer-provided cell phones
The IRS is requesting public comments on several proposals to simplify the procedures under which employers substantiate an employee's business use of employer-provided cell phones or similar telecommunications equipment. Suggestions for alternative approaches to simplify these substantiation procedures are also being requested. Any resulting changes to the substantiation procedures will not become effective until guidance is published.
In the event that an employer acquires, and pays the costs of, a cell phone that is provided to an employee, the employee receives a fringe benefit. To the extent that the employee uses the employer-provided cell phone for business purposes, the fair market value (FMV) of such usage qualifies as a working condition fringe benefit excludable from the employee's gross income and deductible by the employer. However, the exclusion/deduction is not available unless the substantiation requirements of Code Sec. 274(d) are met. In the event that the employee's use of the cell phone is for personal purposes, the FMV of such usage is includible in the employee's gross income. The employer's cost to provide the cell phone is not determinative of the FMV of the benefit received by the employee.
Three alternative methods. The IRS and the Treasury Department are considering three alternative methods to simplify the substantiation requirements applicable to employee usage of employer-provided cell phones. It is contemplated that any employer using a simplified cell phone substantiation method will be required to implement a written policy that (1) requires employees to carry and use the employer-provided cell phone in connection with the employer's trade or business, and (2) prohibits personal use of an employer-provided cell phone other than for minimal personal use, similar to the rules currently applicable to employer-provided automobiles in Temporary Reg. §1.274-6T. It is also anticipated that the employer will be required to reasonably believe that the cell phone is not used for other-than-minimal personal use.
The three alternative substantiation methods being considered by the IRS and Treasury Department are:
- Minimal personal use method. There are actually two proposed “minimal personal use” methods being considered that would allow an employer to treat all of an employee's usage of an employer-provided cell phone as business usage. Under the first proposal, such treatment would be permitted if employees establish that they maintain and use non-employer-provided cell phones for personal purposes during work hours. The second alternative 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.
- Safe harbor substantiation method. Under this method, an employer would treat a certain percentage of each employee's use of an employer-provided cell phone (75 percent, as proposed) as business usage. The remaining percentage would be treated as personal use.
- Statistical sampling method. This method would allow an employes to use a statistical sampling methodology similar to that provided in Rev. Proc. 2004-29, 2004-1 CB 918, to measure an employee's personal use of an employer-provided cell phone. The remaining portion of the employee's usage would be deemed to be for business purposes.
Simplified valuation method. The IRS is also soliciting comments as to whether a simplified valuation method would be helpful and appropriate to determine the FMV of an employee's personal use of an employer-provided cell phone. As noted above, in the event that the employee's use of an employer-provided cell phone is for personal purposes or is not properly substantiated under Code Sec. 274(d), the FMV of such usage would be includible in the employee's gross income as a taxable fringe benefit. The employer's cost to provide the cell phone is not determinative of the FMV of the benefit received by the employee.
Comments requested. Public comments on the proposed substantiation and valuation methods discussed above, as well as suggestions for alternative simplified methods, must be submitted to the IRS on or before September 4, 2009. The notice includes a list of specific issues that the IRS is particularly interested in receiving comments regarding.
Source: IRS Notice 2009-46, June 8, 2009.
Reprinted with permission. © CCH
<p>IRS seeks comments  employer provided cell phones  The IRS is requesting public comments on several proposals to simplify the procedures under which employers substantiate an employee's business use of employer provided cell phones or similar telecommunications equipment. Suggestions for alternative</p>