Employee Benefits-IRS Changes Its Position: No Tax On Personal Use of Employer-Provided Cell Phones

In a reverse of position, according to a statement by IRS Commissioner Doug Shulman, the Treasury will now ask Congress to act to eliminate any income tax arising from an employee’s personal use of an employer-provided cell phone.

Under current law, generally, to the extent that an employer-provided cell phone is used for business purposes by the employee, the value of this use is not taxable to the employee, and the cost of providing the cell phone is deductible by the employer, provided that the business use is substantiated. On the other hand, to the extent the cell phone is used for personal purposes, or that business use is not substantiated, the value of the cell phone use is taxable to the employee, and the cost of providing the cell phone is not deductible by the employer.

Earlier, the IRS had proposed to adopt one of several methods to make it easier for an employer to substantiate business use of the cell phone by an employee, and therefore obtain the favorable tax treatment for business use. See my blog of June 15, 2009. Apparently, public objection to that proposal-many thought it was a guise to help identify and tax personal cell phone use-caused the IRS to change its mind, and simply ask Congress to eliminate any income tax arising from personal use of the cell phone.