IRS looking to ease cell phone recordkeeping requirements

[kcjenkins]

An IRS spokesperson has indicated that IRS is looking to make it easier for taxpayers to comply with the IRS cell phone recordkeeping requirements.

Under Code Sec. 162(a) , individuals may take deductions for all ordinary and necessary expenses incurred in carrying on a trade or business. The expenses are considered tax-free working condition fringe benefits, subject to federal income tax withholding, FICA, and FUTA, if they are incurred by an employee on behalf of an employer.

Cell phones are currently included in the definition of "listed property," as defined in Code Sec. 280F(d)(4) . Expenses related to listed property may not be deducted for income tax purposes under Code Sec. 274(d) unless the employee substantiates by adequate records, or by sufficient evidence corroborating the employee's own statement: (1) the amount of the expenses; (2) the time and place of the expenses; (3) the business purpose of the expenses; and (4) the business relationship to the employee of the persons involved in the expenses. In addition, employees must document their personal use of the property, and the employer must include such use in the employee's income on Form W-2.

Relief is on the horizon. Anita Bartels, Senior Policy Analyst, IRS Small Business/Self-Employed (SBSE) Employment Tax Operations, noted at the American Payroll Association's (APA's) 27th Annual Congress how time consuming the current rules are. For example, all of the personal items on a cell phone bill need to be highlighted. This can be a massive project if an employer has 500 employees with cell phones.

Bartels was asked if IRS would accept a signed agreement between an employer and employee which said that a certain dollar amount of the monthly bill was for personal expenses. Bartels said the agreement would help but IRS would probably look at all the phone bills anyway if the employer was audited.

IRS has been waiting for legislation to be enacted that would ease the recordkeeping requirements in the antiquated rules, but so far that hasn't happened. Bartels said IRS might soon take matters into its own hands by issuing guidance that would simplify the rules. IRS is looking to accept any reasonable arrangement between the employer and employee. For example, under the proposed revised rules, IRS may consider an arrangement under which a company required employees to pay 35% of their cell phone bills to be acceptable. An arrangement where an employer provides a taxable cell phone allowance to employees would also meet IRS's recordkeeping requirements.

YOU MIGHT ALL WANT TO SPREAD THE WORD TO YOUR BUSINESS CLIENTS TO CALL THEIR CONGRESSPERSON AND ASK THEM TO SUPPORT THIS CHANGE.