I hope that I will be able to report soon that this is no longer a problem. A bill has already passed the House and is expected to quickly move through the Senate, with Presidential approval fixing this problem. What is the problem? Under the current law, written back when cell phones were those big Motorola units with fixed antenna and cost $4,000 or more, a cell phone is considered a perk. If your business or employer provides it for you, you pay tax, unless you follow a list of pretty onerous rules.
And, of all things, apparently the IRS has latched on to this. In an ever-increasing move to audit everything they can to get more money (so they can hire more people to get more money), and apparently their IRS handbook has a section on employer-provided cell phones. There is a section reminding the auditor that cell phones “constitute “listed property” under Code Section 280F(d)(4)(A)(v).”
That means no deduction unless the taxpayer substantiates the phone’s business use through adequate records or by sufficient evidence corroborating the taxpayer’s own statement with the following:
The amount of the expense or other item,
The time and place of the use of the property,
The business purpose of the expense, and
The business relationship to the taxpayer using the property.
To determine business use percentage and withstand audit scrutiny, employers must collect and retain monthly statements, which generally set forth the amount of the expense, the time and date of each call and the number dialed. To the extent that employees can demonstrate calls placed to customers or clients, the business purpose and business relationship should withstand scrutiny. Failing to maintain adequate documentation may result in lost deductions and possible Federal employment tax (federal income tax withholding, federal unemployment taxes, and Social Security and Medicare assessments for employers.
I believe that this law will be changed. My concern is for the open years for audit (they can go back 3 years from filing date). If you don’t have this documentation, they can hit you with some tax. And before you dismiss that, consider that it was only a couple of years ago that Congress finally took a special tax to pay for reparations from the Spanish-American War off the books.