IRS Asks Congress To Drop Cellphone Tax

by Mike Godfrey, Tax-News.com, Washington

19 June 2009

The US Treasury is asking Congress to repeal tax legislation concerning the use of employer-provided cell phones because the law is becoming increasingly burdensome for individuals to comply with and for the Internal Revenue Service (IRS) to administer.

The current law, which has been in place for about 20 years, treats cell phones and other mobile communication devices provided by employers to their employees as a fringe benefit and taxes non-work related use accordingly. However, the law has become increasingly outdated commensurate with advances in mobile communications, and with cell phones now seen as a necessity rather than a luxury, it is becoming all the harder to distinguish between personal and work-related use of such devices.

“The current law, which has been on the books for many years, is burdensome, poorly understood by taxpayers, and difficult for the IRS to administer consistently,” observed IRS Commissioner Doug Shulman in a statement. “Therefore, [US Treasury] Secretary Geithner and I ask that Congress act to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers. The passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete.”

Shulman’s statement, however, represents something of a u-turn after the agency suggested that the law could be modernized, and earlier this month, the IRS began a consultation on ways to simplify the law. However, it seems that the agency has bowed to widespread public opinion and recognized that it is impossible to enforce this law without causing a compliance nightmare.

“Some have incorrectly implied that the IRS is ‘cracking down’ on employee use of employer-provided cell phones,” added Shulman. “To the contrary, the IRS is attempting to simplify the rules and eliminate uncertainty for businesses and individuals. Although some of the proposed changes would add clarity, the current law will inevitably leave widespread confusion among employees and businesses,” he added.

Legislation introduced in the Senate by John Kerry to repeal the tax is widely supported. A similar bill is also pending a vote in the House of Representatives.

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