IRS Seeks to Simplify Workers' Cellphone Tax Law

By Kim Hart
Washington Post Staff Writer
Friday, June 12, 2009

In the late 1980s, the image of millionaire Gordon Gekko strolling along a beach with a brick-sized cellphone to his ear in the movie "Wall Street" was the epitome of wealth and excess. Congress passed a law requiring the value of employer-issued cellphones to be included in workers' gross income, unless an employee kept detailed records showing the phone was used only for work.

But now that so many workers tote BlackBerrys and other cellphones issued by their employer, and so many companies don't enforce the tedious record-keeping rule, the Internal Revenue Service is weighing whether a portion of a work-related cellphone bill should be taxed as income.

This week the IRS put forward several proposals intended to simplify the law. There have also been efforts to repeal the law altogether.

"The rationale behind this policy perhaps made sense in the 1980s, but it doesn't reflect how people live their lives and the ubiquitous nature of cellphones," said Sprint Nextel spokesman John Taylor.

The law was designed to prevent employees from using employee-issued cellphones for personal calls and then writing them off as a work-related tax deduction. But keeping the necessary records to prove that employees are not abusing the benefit has proven cumbersome.

Last year, Reps. Sam Johnson (R-Tex.), and Earl Pomeroy (D-N.D.), sponsored legislation to repeal the law. It passed the House but not the Senate. Sens. John F. Kerry (D-Mass.) and John Ensign (R-Nev.) have introduced a similar bill this year.

Cellphone companies including Sprint Nextel and Verizon Wireless have also pushed for the law's undoing, saying that cellphones have become so affordable in the past 20 years that it does not make sense to tax the employee benefit.

"Most people have blended their professional and work life to a degree," Taylor said. "How do you determine if a call was work-related or personal?"

In a letter sent to Capitol Hill last month, a number of industry associations argued that the record-keeping requirements is a burden to companies of all sizes.

The IRS presented three options to simplify the documentation for employers. One is to deem 75 percent of work cellphone use as related to work and the remaining 25 percent for personal use. Employees would be taxed on the value of the personal minutes.

Under a second option, employees would provide proof that they have a personal cellphone to use during work hours. A third would let employers use a statistical sampling to determine the average workers' use of the cellphones for personal calls.

The IRS is seeking comment on the proposals until Sept. 4.

Staff writer Lori Montgomery contributed to this report.

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