Legislation tries to keep up with technology
At least one recent U.S. legislative development could fall into the pro column for consumers: the declassification of cell phones as so-called “listed property” by the Internal Revenue Service.
The first Windows Phone 7 smartphones
The cell phone de-listing action has been on the table for quite some time, and late last month, President Obama signed the Small Business Jobs Act of 2010 into law. One part of that legislation specifies removing employer-provided cell phones — whether they are smartphones, feature phones or basic cell phones — from the IRS’s definition of listed property (IRC Section 280F), regardless of the size of the enterprise.
The designation applies to taxable years beginning after Dec. 31, 2009.
Since its inception in 1989, the listed property classification of cell phones has meant that the personal use of corporate-owned wireless telecom devices was a taxable fringe benefit. So enterprises have been required to treat the value of personal cell phone use as taxable income on their employees’ W-2 tax forms. To do that, they have been expected to collect and maintain documentation to support the value of the personal use they ascribed to employees.
A couple of universities in California in recent years were hit with substantial IRS tax bills for their failure to adequately substantiate their users’ cell phone usage. These events raised awareness of the issue, which has become one reason that some enterprises have begun shifting away from providing corporate-purchased mobile phones to employees.
The new legislation alleviates some of the stress of an unexpected tax bill, but enterprises aren’t completely off the hook. They still need a legitimate business purpose for issuing the equipment to an employee, and “excessive” personal use of the phone — a threshold that remains to be defined — can still end up being taxable to the employee as a benefit.
Observers in the press have indicated that the industry could use some guidance from the Treasury Department and the IRS as to where the line falls between “reasonable” and “excessive” use and for a process to easily substantiate that an employee’s personal use of the equipment doesn’t exceed a reasonable threshold amount.
