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Article Author:

IRS Loosens Employer Provided Cell Phone Rules

The IRS has released guidance on the employee tax treatment of employer-provided cell phones. Notice 2011-72 provides that when an employer provides an employee with a cell phone primarily for business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment.  

The IRS will consider a cell phone to be used primarily for business reasons if the cell phone is provided to carryout employer’s business tasks. The employer need not provide any proof of actual business phone usage by the employee.

Simultaneously with the Notice, the IRS announced in a memo to its examiners a similar administrative approach that applies with respect to arrangements common to small enterprises that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees to use their personal cell phones for business purposes may treat reimbursements of the employees' expenses for reasonable cell phone coverage as nontaxable. 

The IRS is careful to caution that the provision of a cell phone must be for noncompensatory business purposes. As such, the cell phone cannot be provided as a performance incentive or goodwill gesture without regard to the employer’s need for the phone to be used for business purposes.  

For further information please contact David Lowenthal at dlowenthal@BlackmanKallick.com or 312-980-2954 or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.