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. The IRS guidance provides that when an employer provides a cell phone to an employee primarily for non-compensatory business reasons, the business and personal use of the cell phone is generally non-taxable to the employee. Further, the IRS will not require the employer to maintain burdensome recordkeeping of an employee’s business use to substantiate the tax-free treatment.
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. Some examples of non-compensatory business purposes include the need for an employer to contact an employee for work-related emergencies or the need for an employee to contact clients outside the office. A cell phone provided merely to promote employee morale or goodwill, however, is not provided primarily for a non-compensatory business reason and thus this favorable tax treatment will not apply.
This article is for general informational purposes only, it is neither legal advice, nor is it intended to be legal advice; and it is not an exclusive statement of statutory or regulatory provisions or case law. Any questions should be submitted to an attorney for his/her analysis.