Mixed signals on cellphone tax law

The Internal Revenue Service had a moment of clarity Tuesday and backed off from its plan to crack down on personal use of office cellphones -- sort of.

Just last week, the agency stirred up a hornets’ nest of bad publicity by announcing it would ramp up enforcement of a long-standing -- and largely ignored -- federal law requiring that personal calls made on company cellphones be taxed as income.

The agency still stands by that notion and intends to proceed with its crackdown on cellphone scofflaws in the workplace.

But IRS Commissioner Doug Shulman said Tuesday that he and the Obama administration also believe the law should be repealed.


“The passage of time, advances in technology and the nature of communication in the modern workplace have rendered this law obsolete,” Shulman said in a statement.

“The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers and difficult for the IRS to administer consistently.”

To recap: The IRS wants to get rid of a troublesome tax that it simultaneously says it’s determined to enforce.

And people say bureaucrats have no sense of humor.

The law in question dates back 20 years, when cellphones were the size of cement blocks and not all that common an accessory.

Remember when Michael Douglas used a heavyweight handset while strolling the beach in the 1987 film “Wall Street”?

It was something exotic and rarefied, the sort of extravagance only the mega-rich would indulge in.

These days almost everyone sports a cell. More than 270 million people -- 87% of the U.S. population -- have wireless accounts, according to industry figures.


“You can’t argue with the fact that this 1989 law was enacted at a different time,” said a senior IRS official, who refused to have her name published as per some equally arcane agency rule.

The official, speaking by cellphone, readily acknowledged that cellphones have become an indispensable aspect of people’s lives.

“We have no disagreement with that,” she said. “The problem is the 1989 law.”

Specifically, the law says employers must prove that any cellphones given to workers are used exclusively for business purposes. Workers, in turn, must carefully document all usage and separate any personal calls from business calls.


Needless to say, few companies and workers go to this much trouble, meaning that potentially thousands of employers are failing to comply with a rule that even the IRS says is outdated.

Enforcement of the law has been sporadic. Last year, UCLA and UC San Diego agreed to pay $238,474 and $186,471, respectively, to atone for employees’ personal calls.

“I’ve never considered my cellphone a perk,” said an incredulous Julie Estrada, who works as a PR official for the Legoland theme park in Carlsbad. “It’s a necessity.”

To illustrate her point, she described how she was driving to a recent meeting and heard a local radio station listing various events. Unmentioned was a “Star Wars” shindig at Legoland.


“So I called the producer of the show, and within a half-hour I heard something on the radio,” Estrada said.

Not that she’s all business.

“There are times when I’m going to be late and need to call my husband and have him pick up the kids,” Estrada said.

Many would say that’s just life in a wireless world. You make business calls, you make personal calls. There it is.


The IRS insists that it’s been stewing on the cellphone tax for a while and concluded that the law is the law, so there will be compliance -- until Congress says otherwise.

Last week, the agency proposed that workers pay a blanket 25% levy on all calls made using company cellphones.

This obviously is a lousy idea, and Congress should definitely put a spike through the cellphone tax. Bills are currently working through both the House and Senate that would do just that.

So why did the IRS decide to stir things up with last week’s announcement about a crackdown?


Art Brodsky, a spokesman for Public Knowledge, a digital-rights advocacy group, said he suspects the agency was merely trying to figure out

how to score some additional cash in a changing telecom market.

As people abandon traditional land-line phones and go completely wireless, Brodsky said, the feds are losing revenue because of tax-deductible business cellphone accounts.

“They may be trying to get that back,” he said, “and this would be the first step to doing that.”


But he admitted he could be giving the feds too much credit for cleverness.

After all, it wasn’t until 2006 that the Treasury Department said it would stop collecting a 3% tax on long-distance calls, which was first imposed in 1898 to help pay for the Spanish-American War.

The tax was intended to target wealthy Americans who used newfangled technology called a “telephone.”

“Being behind the times is nothing new for the government,” Brodsky said.



David Lazarus’ column runs Wednesdays and Sundays and occasionally in between. Send your tips or feedback to