Detailed Analysis of Cell Phone Fringe Benefit Issue

Is cell phone "listed property"?

Sec. 280F Limitation on depreciation for luxury automobiles; limitation

where certain property used for personal purposes

(d) Definitions and special rules

For purposes of this section -

(4) Listed property

(A) In general

Except as provided in subparagraph (B), the term "listed property" means -

(i) any passenger automobile,

(ii) any other property used as a means of transportation,

(iii) any property of a type generally used for purposes of entertainment,

recreation, or amusement,

(iv) any computer or peripheral equipment (as defined in section

168(i)(2)(B)),

(v) any cellular telephone (or other similar telecommunications equipment),

and

(vi) any other property of a type specified by the Secretary by regulations.

Does the IRS impose detailed record keeping requirements on "listed property"?

deduction (non-applicable in 501(c) (3) entities) and fringe benefits purposes

because of detailed recordkeeping with respect to such property.

Sec. 274. Disallowance of certain entertainment, etc., expenses

(d) Substantiation required

No deduction or credit shall be allowed -

(4) with respect to any listed property (as defined in section 280F(d)(4)),

unless the taxpayer substantiates by adequate records or by sufficient

evidence corroborating the taxpayer's own statement (A) the amount of such

expense or other item, (B) the time and place of the travel, entertainment,

amusement, recreation, or use of the facility or property, or the date and

description of the gift, (C) the business purpose of the expense or other item,

and (D) the business relationship to the taxpayer of persons entertained,

using the facility or property, or receiving the gift. The Secretary may by

regulations provide that some or all of the requirements of the preceding

sentence shall not apply in the case of an expense which does not exceed an

amount prescribed pursuant to such regulations. This subsection shall not

apply to any qualified nonpersonal use vehicle (as defined in subsection (i)).

See also Treasury Reg 1.274-5T (b) (6)

Sec. 1.274-5T Substantiation requirements (temporary).

(b) Elements of an expenditure or use--(1) In general. Section 274(d) and

this section contemplate that no deduction or credit shall be allowed for

travel, entertainment, a gift, or with respect to listed property unless the

taxpayer substantiates the requisite elements of each expenditure or use as

set forth in this paragraph (b).

(6) Listed property. The elements to be proved with respect to any listed

property are--

(i) Amount—

(A) Expenditures. The amount of each separate expenditure with respect to

an item of listed property, such as the cost of acquisition, the cost of capital

improvements, lease payments, the cost of maintenance and repairs, or other

expenditures, and

(B) Uses. The amount of each business/investment use (as defined in Sec.

1.280F-6T (d)(3) and (e)), based on the appropriate measure (i.e., mileage

for automobiles and other means of transportation and time for other listed

property, unless the Commissioner approves an alternative method), and the

total use of the listed property for the taxable period.

(ii) Time. Date of the expenditure or use with respect to listed property,

and

(iii) Business or investment purpose. The business purpose for an

expenditure or use with respect to any listed property (see Sec. 1.274-

5T(c)(6)(i) (B) and (C) for special rules for the aggregation of expenditures

and business use and Sec. 1.280F-6T(d)(2) for the distinction between

qualified business use and business/investment use).

What fringe benefit safe harbor excludes the value of the business use of listed property from an employee’s gross income?

Sec. 132. Certain fringe benefits

(d)Working condition fringe defined

For purposes of this section, the term "working condition fringe" means any

property or services provided to an employee of the employer to the extent

that, if the employee paid for such property or services, such payment would

be allowable as a deduction under section 162 or 167.

Sec. 62. Adjusted gross income defined

(c) Certain arrangements not treated as reimbursement arrangements

For purposes of subsection (a)(2)(A), an arrangement shall in no event be

treated as a reimbursement or other expense allowance arrangement if -

(1) such arrangement does not require the employee to substantiate the

expenses covered by the arrangement to the person providing the

reimbursement, or

(2) such arrangement provides the employee the right to retain any amount

in excess of the substantiated expenses covered under the arrangement. The

substantiation requirements of the preceding sentence shall not apply to any

expense to the extent that substantiation is not required under section 274(d)

for such expense by reason of the regulations prescribed under the 2nd

sentence thereof.

Will insufficient record keeping result in taxation?

See Treasury Reg 1.274-5T(e).

Sec. 1.274-5T Substantiation requirements (temporary).

(e) Substantiation of the business use of listed property made available by an

employer for use by an employee--(1) Employee--(i) In general. An

employee may not exclude from gross income as a working condition fringe

any amount of the value of the availability of listed property provided by an

employer to the employee, unless the employee substantiates for the period

of availability the amount of the exclusion in accordance with the

requirements of section 274(d) and either this section or Sec. 1.274-6T.

Can employer adopt a "no personal use" policy with respect the cell phones?

See Treasury Reg 1.274-6T(a)(2)

Sec. 1.274-6T Substantiation with respect to certain types of listed property

for taxable years beginning after 1985 (temporary).

(a) Written policy statements as to vehicles--(1) In general. Two types of

written policy statements satisfying the conditions described in paragraph

(a)(2) and (3) of this section, if initiated and kept by an employer to

implement a policy of no personal use, or no personal use except for

commuting, of a vehicle provided by the employer, qualify as sufficient

evidence corroborating the taxpayer's own statement and

therefore will satisfy the employer's substantiation requirements under

section 274(d). Therefore, the employee need not keep a separate set of

records for purposes of the employer's substantiation requirements under

section 274(d) with respect to use of a vehicle satisfying these written policy

statement rules. A written policy statement adopted by a governmental unit

as to employee use of its vehicles is eligible for these exceptions to the

section 274(d) substantiation rules. Thus, a resolution of a city council or a

provision of state law or a state constitution would qualify as a written policy statement,

as long as the conditions described in paragraph (a)(2) and (3) of this section are met.

(2) Vehicles not used for personal purposes--(i) Employers. A policy

statement that prohibits personal use by an employee satisfies an employer's

substantiation requirements under section 274(d) if all the

following conditions are met--

(A) The vehicle is owned or leased by the employer and is provided to

one or more employees for use in connection with the employer's trade or

business,

(B) When the vehicle is not used in the employer's trade or business, it is

kept on the employer's business premises, unless it is temporarily located

elsewhere, for example, for maintenance or because of a mechanical failure,

(C) No employee using the vehicle lives at the employer's business premises,

(D) Under a written policy of the employer, neither an employee, nor any

individual whose use would be taxable to the employee, may use the vehicle

for personal purposes, except for de minimis personal use (such

as a stop for lunch between two business deliveries), and (E) The

employer reasonably believes that, except for de minimis use, neither the

employee, nor any individual whose use would be taxable to the employee,

uses the vehicle for any personal purpose.

Is Sampling Permitted?

See Treasury Reg 1.274-5T(c)(3)(ii).

Sec. 1.274-5T Substantiation requirements (temporary).

(ii) Sampling--(A) In general. Except as provided in paragraph (c)(3)(ii)(B)

of this section, a taxpayer may maintain an adequate record for portions of a

taxable year and use that record to substantiate the business/investment use

of listed property for all or a portion of the taxable year if the taxpayer can

demonstrate by other evidence that the periods for which an adequate record

is maintained are representative of the use for the taxable year or a portion

thereof.