IRS chooses to wait for Congress to act on employer-provided cell phone tax rules

IRS Commissioner Douglas Shulman has announced that the IRS will no longer attempt to draft rules on the taxation of employer-provided cell phones. Instead, Shulman reported that the agency will wait for Congress to take action. The commissioner made this announcement during a January 8 television interview. "We're quite hopeful Congress is going to act on this," Shulman stated, "In the meantime, we're not doing anything special or moving forward with any initiatives."

While business use of a cell phone may be a working condition fringe benefit, personal use of an employer-provided cell phone is a taxable fringe benefit. However, substantiating the difference between these two types of uses for cell phones has been criticized as overly burdensome. Shulman himself has indicated that the law is "poorly understood by taxpayers and difficult for the IRS to administer consistently."

With the intention of eliminating uncertainty for businesses and individuals, the IRS announced earlier this year that it was considering several proposals to simplify the procedures for employers to substantiate employees' business use of cell phones. In addition to requesting public comments on these proposals, the IRS also asked for comments as to whether a simplified method would be appropriate to calculate the fair market value of the employee's personal use of an employer-provided cell phone. However, because the proposals could have potentially taxed 35 percent of an employee's use of a work cell phone, these proposals met with great public disapproval.

Due to the public's reaction, Commissioner Shulman has encouraged Congress to pass legislation to end the taxation of employees' personal use of employer-provided cell phones. While several proposals have been introduced in both the House and Senate, no legislation has been finalized.