IRS Cell Phone Policies & Practices

1. Timely Topics and Gossip CSG January 2008 Virginia Tech Michael Pickett IRS Cell Phone Policies & Practices

2. Overview • The IRS treats personal use of cell phones paid for or provided by Universities as fringe income to the employee • Cell phones do not usually qualify as de minimis fringe benefits • Laptops and cell phones must be considered fringe income for “executives”

3. IRS Taxable Fringe Benefit Guide Employers often provide employees with certain electronic and telecommunication equipment for use outside of the employer's premises in the performance of their duties. These items (and other items listed in IRC § 280F) are considered "listed property". Because the nature of the property lends itself to personal use, strict substantiation requirements are in place. Employees are required to account for business and personal use. IRC § 274(d); IRC § 280F(d)(4); IRC § 132(d) Examples: Cell phones, automobiles, computers, internet provider allowances http://www.irs.gov/pub/irs-tege/fringe_benefit_fslg.pdf

4. Record Keeping – IRS Fringe Guide Substantiation Requirements Records of business and personal use must be kept by the employee in order to determine whether the value of any of the use is included in the employee’s wages. IRC § 274(d) Example: An employer provides an employee with a cell phone and pays the monthly charges. The employer requires the employee to highlight personal calls on the monthly bill. The employer includes the direct charges for personal use and a pro rata share of monthly fees and services in the wages of the employee. The business use is not taxable to the employee.

5. IRS - Executive Compensation02-2005 Employee Use of Listed Property - Special recordkeeping rules apply to computers except for those used exclusively at the business establishment and owned or leased by the person operating the business. Detailed records are required to establish business use of computers that can be taken home or are kept at home by the executives. There are no record keeping exceptions like “no personal use” available for computers. See Code §280F(d)(4)(B) and §274(d)(4), and cf. Reg. §1.274-6T(a)(2) and§ 1.280F-6T(b)(3)(ii). Similar recordkeeping problems arise for cellular and car phones placed in service after 1989.

6. Prior Art • Employees pay “reasonable” monthly amount • http://www.temple.edu/cs/telecommunications/cellular_personal_use_9-28-06.htm • Employees receive regular allowance to cover the business cost of use of personal cell phones • http://fa.ufl.edu/uco/cell-phone-faq.asp • Employees receive a supplement to cover the personal tax impact of carrying a University cell phone • http://www.baylor.edu/tax/index.php?id=38399

7. Discussion and Timely Tips on Cell Phone, Computer and home ISP Connectivity Policy