IRS may ease rules on business cellphones

The Internal Revenue Service could make it easier for employers to give workers cellphones by simplifying its record-keeping rules.

The agency said this week that it was considering adopting one of three methods that would relieve employers of some record-keeping requirements that have been in place since 1989.

Phone companies have been urging the IRS to relax the rules for years, saying they are too burdensome. The rules are designed in part to monitor how often employer-issued cellphones are used for personal calls.

Many employers, especially universities, have stopped providing their workers with cellphones after having deductions related to their use denied by IRS auditors because of insufficient record-keeping, said University of Cincinnati law professor Paul Caron, who first reported the new IRS notice on his TaxProf Blog.

Scott Mackey, a consultant to companies who testified before Congress on the issue last year, said the audits had hurt business for cellular companies.

“The practical effect” of the rules and the audits “is that many businesses have stopped subscribing to multi-line business accounts and provide their employees with a taxable allowance to sign up for wireless services that will be used for business purpose,” Mackey told the House Small Business Committee in April 2008.

The issue has particularly affected tax-exempt organizations, where audits of payrolls are more common, Mackey said.

Jay Driscoll, director of government affairs at the Washington-based CTIA international wireless association, said the audits made it hard for wireless companies to sell phones in bulk to employers.

“The way this works is you have to go out and sell cellphones to each employee” under the current rules, he said.

The IRS notice “is a step in the right direction,” Driscoll said. “It’s far from being perfect. The only way you can fully take care of this problem is through legislation.”

One of the rule changes the IRS is considering would deem an employer-provided cellphone to be minimally used for personal reasons if a worker owns a personal cellphone or the employer sets a small amount of minutes that the business-provided phone could be used for personal use.

The second potential change would make 25% of the cellphone’s use taxable to the employee. The third would use statistical sampling to measure personal use.