Section 2043 of the Small Business Jobs Act of 2010 removed cell phones from the definition of listed property for taxable years beginning after December 31, 2009. On September 14, 2011, the IRS issued Notice 2011-72 providing guidance to employers on the tax treatment of employer-provided cell phones.
Notice 2011-72 provides that when an employer provides an employee with a cell phone primarily for non-compensatory business reasons, the IRS will treat the employee’s use of the cell phone for reasons related to the employer’s trade or business as a working condition fringe benefit, the value of which is excludable from the employee’s income and solely for purposes of determining whether the working condition fringe benefit provision in Section 132(d) applies, the substantiation requirements that the employee would have to meet in order for a deduction under Section 162 to be allowable are deemed to be satisfied. Additionally, the IRS will treat the value of any personal use of a cell phone provided by the employer primarily for non-compensatory business purposes as excludable from the employee’s income as a de minimis fringe benefit.
The key is non-compensatory business reasons in proving the cell phone. Non-compensatory business reasons could include the employer’s need to contact the employee at all times for work-related emergencies, the employer’s requirement that the employee be available to speak to clients at times when the employee is away from the office, and the employee’s need to speak with clients located in other time zones at times outside the employee’s normal work day.
Notice 2011-72 can be located on the IRS’ website, www.irs.gov. If you have any questions with respect to the tax treatment of employer provided cell phones or any other items of employer provided equipment, you should contact your local tax attorney or certified public accountant.