Heightened Substantiation is no Longer Required for Employer-Provided Cell Phones

Employer-provided cell phones and other similar telecommunications devices are no longer subject to heightened substantiation requirements under Internal Revenue Code Section 280F(d)(4) in order to be excluded from an employee’s taxable income as a working condition fringe benefit under Code Section 132(d). The Small Business Jobs Act of 2010, signed into law on September 27, 2010, removes employer-provided cell phones and other similar devices from "listed property" under Code Section 280F(d)(4). Items included as "listed property" are subject to heightened substantiation requirements that require the maintenance of records sufficient to confirm the time and place of the use, expense, business relationship to and purpose of the employer-provided equipment.

Effective for taxable years beginning after December 31, 2009, the removal of cell phones from "listed property" will make it much easier for employers to exclude the benefit from an employee’s taxable income and deduct the cost of the cell phone as an ordinary and necessary business expense under Code Section 162. The employer-provided cell phone must still be established as a business expense, however, and an employer is required to include in the employee’s taxable income the appropriate amount of the benefit if the employee uses the cell phone for personal use. The amount includable in the employee’s taxable income is based on how much the employee would have to pay for the benefit and not the employer’s cost to provide the benefit.

The Joint Committee on Taxation made clear that despite the changed law, the Internal Revenue Service continues to maintain the authority to determine when an employer-provided cell phone is a working condition fringe benefit and excludable from income under Code Section 132(d) as a "qualified business expense"; or, when an employer-provided cell phone is a "de minimis fringe benefit" under Code Section 132(e), excludable from an employee’s taxable income because the value of the property and its services are so small as to make accounting for the benefit administratively unreasonable or impractical.

Please contact your Foster Swift employee benefits attorney if you have any questions.

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