A little understood 20-year-old U.S. Internal Revenue Service rule that taxes employees’ personal use of employer-provided mobile phones should be repealed, trade group CTIA said.
The rule could potentially cost employees with employer-provided phones hundreds of dollars in federal income taxes a year, were it enforced. The IRS rule, which requires employers to log business-related usage of mobile phones provided to workers, is “burdensome and poorly understood,” said Steve Largent, president and CEO of CTIA, a trade group representing mobile carriers.
The IRS has proposed new rules, and in one proposal, the IRS would assume that 25 percent of an employer-provided phone is for personal use, with employees paying income taxes on that 25 percent. CTIA, in comments filed to the IRS Tuesday, suggested that proposed change doesn’t go far enough. The IRS asked for comments on the mobile-phone tax in a bulletin issued June 8.
Businesses provide mobile phones to their employees as a way to contact them during emergencies, and the tax on personal use doesn’t take into account the business needs, CTIA said. A doctor might get only 20 percent of her calls from a hospital, but those calls are important, CTIA said.
“Should [the doctor] be forced to pay tax on 80 percent of the cost of the phone or carry a second phone to comply with the tax laws?” CTIA general counsel Michael Altschul wrote. “We think this is impractical and of little tax benefit to the government. Such rules fail to understand the nature of the business needs for a cell phone in today’s society.”
The IRS listed mobile phones as taxable “listed property” in 1989. Under the rule, if the business or employee does not keep records of business and personal calls, part of the value of the mobile-phone service is subject to the employee’s federal income tax. At the time, mobile phones were expensive and considered to be a luxury, CTIA said.
Four members of the U.S. Congress have introduced two bills earlier this year that would take mobile phones and similar devices off the IRS listed property rules. Both versions of the Modernize Our Bookkeeping In the Law for Employee's (MOBILE) Cell Phone Act haven’t moved out of committee yet.
IRS Commissioner Doug Shulman questioned the rule in a statement in June. He called the rule “burdensome” and “difficult for the IRS to administer consistently.”
The IRS was trying to simplify the rules with its June bulletin, he added in the statement.
“Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses,” Shulman said. “Therefore, [U.S. Treasury Secretary Timothy Geithner] and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.”