By Steven D. Mercatante Esq.

 
Compliance with IRS rules and regulations can seem never ending and even more difficult the more you learn. Fringe benefit related issues are no exception. Few issues have generated greater reporting questions than those revolving around when a worker uses cell phones for work; i.e. when is worker use of a cell phone reportable income? This article takes a practical approach to introducing accounts payable professionals to the exceptional reporting issues posed by employer provided cell phones. First, we will review the law as it exists today, then lay out some simple ways of complying with the law and finally, close with a look ahead to possible forthcoming changes in the law.
 
The Historical Approach to Fringe Benefit Reporting
 
First, where does the law stand today? To understand that we must look briefly at some history. Early in the 1980’s the IRS first made an in depth effort at addressing the reporting issues posed by fringe benefit payments by amending IRC §61. As amended §61 sets forth the basic rule that any fringe benefit provided in connection with the performance of services is includible income (as part of §61’s larger description of gross income). Shortly thereafter however the IRS recognized the need for further clarification and created §132 for the purpose of addressing regularly used employer provided fringe benefits that were frequently questioned as to whether they were covered by the code. These fringe benefits, known as “working condition fringe benefits” include all sorts of benefits such as: qualified transportation fringes, qualified retirement planning services, working condition fringes, de minimis fringes, qualified employee discounts and many more. The scope of §132 is really quite expansive and it would be wise for you to review all of the exceptions from compensation covered therein. Also note the basic definition of a working condition fringe benefit; property or services provided to an employee to the extent that, if the employee paid the expense, it would be deductible under IRC §§ 162 or 167. Included in this list of working condition fringe benefits are cell phones.
 
Fringe Benefits and Cell Phones
 
When it comes to cell phones §132 allows an employee to exclude from gross income an employer provided cell phone provided it is for business purposes. Before we further delve into how to go about excluding cell phone usage from income it is important to note that cell phones fall into a category of personal property known to the IRS as “listed property.” According to the IRS; “listed property includes items obtained for use in a business but designated by the Internal Revenue Code as lending themselves easily to personal use.” Examples include computers, cars and cell phones. Because items categorized as listed property can so easily cross over from business to personal use and back the IRS has strict substantiation requirements for cell phone use (in order to meet the requirements for the exclusion provided by §132).  In exploring these substantiation requirements we can get a better feel for the steps you will follow to make sure you stay in compliance with the Internal Revenue Code.
 
How to approach Fringe Benefits
 
The tax treatment of fringe benefits is a highly fact and circumstance analysis requiring you to think actively through each situation you may be confronted with. The key to staying in compliance is...