Labor & Employment Law

Outdated IRS Rules on Employee Cell Phone Usage Likely To Change

A recent LA Times Article reports that the current IRS rule for expensing employer-provided cell phones is likely to be changing soon.  The current rule permits employers to treat employee cell phone reimbursement as a deductible business expense only if the employee has kept a detailed log of every call and the reason for the call.

A bi-partisan bill to dispense with this log-keeping requirement (which is almost universally ignored in practice anyway), is co-sponsored by Reps. Sam Johnson (R-Texas) and Earl Pomeroy (D-N.D.), and has already passed the House.

The cellphone tax law was set "in 1989 when cellphones were huge and when it cost a lot of money to make a phone call," Johnson said. "Nowadays they're a dime a dozen and the cost is way down. If you don't log all your telephone calls, you're going to have some IRS weenie after you. That's why we're trying to get the law changed -- because it just doesn't make any sense anymore."

A change appears likely. When pressed by Johnson at a hearing this year, Treasury Secretary Henry M. Paulson said that updating the rules sounded "like the right idea to me." And the IRS' Advisory Committee on Tax Exempt and Government Entities, calling the rules "burdensome for any employer," recommended last month that the agency loosen reporting requirements for employers and that Congress change the law.

According to the Times article, "Nationwide, about 5.5 million people have cellphone service paid for directly by their employers -- and they are a group that makes up 2.4% of all wireless subscribers."  Given the wireless industry's interest in preserving and growing this market, we are willing to bet that the the new legislation is a lock in the coming year.

Full post as published by California Labor & Employment Defense Blog on July 30, 2008 (boomark / email).