In a rare gesture of friendliness toward taxpayers, last week the IRS allowed that personal use of employer provided cell phones generally will now be considered nontaxable — a working condition fringe benefit, the value of which is excludable from the employee’s taxable income.
It has been about a year since cell phones were removed from the “listed property” category if IRC Section 280F. And now, in Notice 2011-72, IRS states that where an employer provides employees with cell phones primarily for noncompensatory business reasons, neither the business nor personal use of the phone will result in income to the employee, and no recordkeeping of usage is required. Further, in most instances, an employer’s reimbursement for employees’ cell phone costs associated with bona fide business use won’t be taxable. This guidance applies for all tax years after 2009.
Notice 2011-72 does not address, however, the treatment of reimbursements received by employees from employers for the business use of an employee’s personal cell phone.
The Notice provides that an employer is treated as having provided an employee with a cell phone primarily for noncompensatory business purposes if there are substantial reasons relating to the employer’s business, other than providing compensation to the employee, for providing the phone.
Examples of substantial noncompensatory business reasons for requiring employees to maintain personal cell phones and reimbursing them for their use include:
1. The employer’s need to contact the employee at all times for work-related emergencies; and
2. The employer’s requirement that the employee be available to speak with clients at times when the employee is away from the office or at times outside the employee’s normal work schedule.