Basic Analysis of Cell Phone Fringe Benefit Issue
Is cell phone “listed property”?
Yes, any cellular telephone, or other similar telecommunications equipment
IRC Section 280F (d) (4) (A)(v).
Does the IRS impose detailed record keeping requirements on “listed property”?
Yes, the designation of listed property has implication for both business deduction and fringe benefits purposes because of detailed recordkeeping with respect to such property.
IRC Section 274(d) (4).
Yes, Elements of an expenditure or use... that no deduction or credit shall be allowed for listed property unless the taxpayer substantiates the requisite elements of each expenditure or use
(6)The elements to be proved with respect to any listed property are-- (i) Amount—(A) Expenditures. (B) Uses. (ii) Time. Date of the expenditure (iii) Business or investment purpose.
Treasury Reg 1 .274-5T (b) (6)
What fringe benefit safe harbor excludes the value of the business use of listed property from an employee’s gross income?
The safe harbor resides with working condition fringe benefit exclusion of along with “accountable plan” rules.
If an employer provides a cell phone and service plan to an employee, by either paying for the benefits directly or reimbursing the employee, the exclusions set forth apply only if the recordkeeping substantiates the business use each calendar year.
IRC Section 132(d) IRC Section 62(c).
Will insufficient record keeping result in taxation?
Yes, if insufficient or no records are kept, the exclusion for working condition fringe benefit and accountable plan reimbursements will not apply to exclude the business use of the cell phone.
Treasury Reg 1 .274-5T (e).
Can employer adopt a “no personal use” policy with respect the cell phones?
No, this type of policy only applies to vehicles.
Treasury Reg 1 .274-6T (a) (2)
Is sampling permitted?
The regulations permit employers to substantiate the business use of a cellular phone by maintaining adequate records for a portion of the tax year. By utilizing a “sampling” method, the Enterprise would have to collect the records pertaining to the sampling period and also be prepared to demonstrate that the records pertaining to the sampling period are representative of the use for the entire calendar year.
Treasury Reg 1 .274-5T(c) (3) (ii).