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Businesses Lobbying to Remove Cell Phones From Listed Property

A quick review on the “Modernize Our Bookkeeping In the Law for Employee’s Cell Phone Act of 2008” legislation.

October 6, 2008
Sponsored by Gear Up

H.R. 5450 and S. 2668, both entitled “Modernize Our Bookkeeping in the Law for Employee’s Cell Phone Act of 2008”

Identical bills have been introduced in the House and Senate to remove cell phones and similar telecommunications equipment from the category of listed property. Indeed, a number of companies and business associations expressed strong support for the Senate bill (S. 2668) in a July 10, 2008, letter to Senate Finance Committee Chair Max Baucus, (D-MT), and ranking minority member Chuck Grassley (R-IA). Additionally, an IRS Information Letter responding to concerns expressed by a House member that states and localities are having difficulty drafting cell phone policies that comply with IRS recordkeeping requirements for employer-provided cell phones acknowledged the proposed legislation and also revealed that IRS is considering various changes to the cell phone substantiation requirements.

Background

Under Code Section 132, an employee may exclude from gross income the business use of an employer-provided cell phone as a working condition fringe benefit. However, because cell phones are listed property in Code Section 280F, strict substantiation requirements must be satisfied for business cell phone usage to qualify for the Code Section 132 exclusion. Moreover, any personal usage of an employer-provided cell phone is a taxable fringe benefit. Thus, the current rules require documentation of the business and personal use of the cell phone.

Letter lobbying for the change. The July 10 letter (not reproduced) to Senators Baucus and Grassley stresses that these “strict substantiation requirements were added at a time when cell phones were considered a luxury item. Now, their use in business, government and nonprofits is commonplace and essential in the modern world. Meeting these strict substantiation requirements burdens the business use of cell phones, dampens the use of advanced technology and is impractical given their frequent use in a fast-paced global work environment. Such detailed documentation is not required for use by an employee of his office phone. There is no reason that cell phones should be subjected to stricter substantiation requirements.”

The letter goes on to state that “the cost of cell phones and wireless service has decreased significantly since the substantiation requirements were adopted. Thus, taxpayers are subject to significant compliance burdens to monitor a relatively small potential fringe benefit, if any. As with other business property, taxpayers must still be able to demonstrate the business use of the cell phone.”

Text of the Legislation

The proposed legislation is very straightforward. Currently, cell phones (and similar telecommunication equipment) are treated as listed property under Code Section 280F(d)(4)(A)(v). The identical bills would remove Code Section 280F(d)(4)(A)(v) and re-designate Code Section 280F(d)(4)(A)(vi) as Code Section 280F(d)(4)(A)(v). The change would apply to tax years beginning after 2007.

Observation

This measure has bipartisan support, but even if the measure gets bogged down in Congress, the IRS could provide relief that could very well apply retroactively.

— Published in the September 2008 issue of the Gear Up Gold Rush newsletter available from the Tax & Accounting business of Thomson Reuters. Copyright © September 2008. To learn more about Gear Up, visit trainingcpe.thomson.com/GearUp.