IRS asked to repeal cell phone tax

Businesses are urging the IRS to cease taxing the personal use of work-issued cell phones.

A message is being conveyed by lobbying groups for a wide array of industries, from trucking to Ivy League universities: cell phones are so ubiquitous and have become such an essential business tool that it’s nearly impossible to keep track of the line between professional and personal use.

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In 1989, when cell phones were expensive and considered a luxury perk for select employees, Congress passed a law requiring the value of employer-issued cell phones to be included in a worker's gross income — unless employees kept detailed records showing the phone was used solely for work purposes. The process was intended to prevent employees from using work cell phones for personal calls and then writing them off as a work-related tax deduction.

But times have changed and businesses say forcing employees to keep tedious records distinguishing between work and personal calls does not make sense.

In June, the IRS offered three options to simplify the law.

One would consider 75 percent of the minutes used by a work-issued cell phone as related to work and the remaining 25 percent as personal use, so employees would only be taxed on the value of the personal minutes.

A second option would let employees use a statistical sampling to determine the average worker's use of the cell phones for personal calls.

Under a third option, employees would have to prove that they have a personal cell phone to use during work hours.

The public comment period on the proposals ended Friday.

Wireless carriers have vocally argued that the law be repealed altogether, saying that cumbersome requirements of their customers is bad for business. Many large companies pay hundreds of thousands of dollars for employee cell phone service each year.

CTIA, the wireless industry’s main lobbying association, said the cost of wireless service has plunged over the past 20 years, with most phones costing between $50 and $100 a month.

“Today, rather than a luxury, cell phones are more like pencils and paper,” wrote general counsel Michael F. Altschul in comments filed with the IRS.

Last year, Reps. Sam Johnson (R-Texas) and Earl Pomeroy (D-N.D.) introduced a bill that would remove work-issued cell phones from the list of taxable fringe benefits. Sens. John Kerry (D-Mass.) and John Ensign (R-Nev.) introduced an identical bill. The proposal passed the House but was held up by the Senate. The bills were reintroduced earlier this year.

In comments to the IRS, municipalities, universities, non-profits and churches argued that personal calls from office landlines and e-mails from work computers are not tracked and taxed, so cell phones should be treated in the same manner, without requiring company time documenting every number dialed.

“Cities and states are negatively impacted by being required to be an extension of the IRS, collecting and remitting federal taxes, which basically serves as an unfunded mandate by driving up costs for local governments,” wrote Steve Sarkozy from the Office of the City Manager of Bellevue, Wash.

The American Trucking Associations urged the IRS to adopt all three of its proposals and to let companies choose the option that best fits their needs. The Mountain States Health Alliance, based in Tennessee, said it is difficult to explain to employees why their cell phones, which force them to be on call in off-hours and to conduct business from home, have to be taxed.

“Sometimes I write personal letters with a company pen. Or sometimes I go to a website for personal reasons with my company laptop,” wrote Stephen Carey, a manager at IBM. “Will I be taxed on that too?”

It seems these arguments have the support of other senior officials. In June, IRS Commissioner Douglas Shulman and Treasury Secretary Timothy Geithner asked that “Congress act to make clear that there will be no tax consequences to employers and employees for personal use of work-related devices such as cell phones provided by employers.”

To avoid confusion, CTIA asked the IRS to suspend all audits of work-issued cell phone taxes until Congress resolves the issue.

“We believe that the adoption of this legislation comports with current business and economic realities of the modern world and will save millions of dollars per year in wasteful tracking and recordkeeping, not to mention auditing costs,” Altschul said.