Cell phones aren't a fringe benefit any more, says IRS commissioner

Even though mobile phones are now practically issued at birth, with models designed for children, the elderly and those on public assistance, businesspeople have been subject to a 20-year old tax law that treats the devices as a luxury.

Earlier this month, the IRS issued notice for public comment on simplifying procedures for taxing employer-issued cell phones. The law classifies work-issued cell phones as a fringe benefit that are subject to income tax, and demands that employees keep a detailed record of calls made on their work phones that delineate business from personal use.

The 1989 law says, "At a minimum, the employee should keep a record of each call and its business purpose. If calls are itemized on a monthly statement, they should be identifiable as personal or business, and the employee should retain any supporting evidence of the business calls. This information should be submitted to the employer, who must maintain these records to support the exclusion of the phone use from the employee's wages." When the law was enacted, mobile phones were much more expensive and was seen as "a tax on CEOs and rich people."

Yesterday, IRS Commissioner Douglas Shulman issued a statement asking that the law be repealed entirely. Shulman said, "The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently...Therefore, Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers." 

The University of California system was subject to major fines for this law in 2008, and UCLA had to pay a tax assessment of $278,474, and UCSD had to pay $186,471 because the branches had improperly filed employee cell phone records. In the University system's audit, every single call made on every employee's work-issue phone had to be documented.

Shulman said, "The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete."