Originally Published on forbes.com on September 18th, 2011
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My job as a tax partner in a large regional accounting firm is not one that involves life or death urgency. It just seems that way to some people. Like my last managing partner. One Saturday that did not fall in either tax season (January 1 to April 15) or second tax season (August 1 to October 15), I was either out of cell phone range or had the phone turned off. I returned home to several messages of increasing frustration and urgency about some client matter that could not be acted on until Monday. It was on his mind and it was bothering him, though, so it was pretty irresponsible of me to not be there for him. So if you get a job and you are excited to find that your employer is providing you with a “free cell phone”, you may want to ease up on the celebrating. A “free cell phone” may not cost you as much money as a “free cat”, but you may end up paying for it other ways. The IRS seems to be aware of this reality as evidenced by guidance issued to auditors in IRSMEMO 20110914, which addresses employees being reimbursed as opposed to being issued phones.
In cases where employers, for substantial noncompensatory business reasons, require employees to maintain and use their personal cell phones for business purposes and reimburse the employees for the business use of their personal cell phones, examiners should analyze reimbursements of employees’ cell phone expenses in a manner that is similar to the approach described in Notice 2011-72. Specifically, in cases where employers have substantial business reasons, other than providing compensation to the employees, for requiring the employees’ use of personal cell phones in connection with the employer’s trade or business and reimbursing them for their use, examiners should not necessarily assert that the employer’s reimbursement of expenses incurred by employees after December 31, 2009, results in additional income or wages to the employee.
Of course they will still be alert for any shenaningans:
However, the employee must maintain the type of cell phone coverage that is reasonably related to the needs of the employer’s business, and the reimbursement must be reasonably calculated so as not to exceed expenses the employee actually incurred in maintaining the cell phone. Additionally, the reimbursement for business use of the employee’s personal cell phone must not be a substitute for a portion of the employee’s regular wages. Arrangements that replace a portion of an employee’s previous wages with a reimbursement for business use of the employee’s personal cell phone and arrangements that allow for the reimbursement of unusual or excessive expenses should be examined more closely.
Examples of reimbursement arrangements that may be in excess of the expenses reasonably related to the needs of the employer’s business and should be examined more closely include: (1) reimbursement for international or satellite cell phone coverage to a service technician whose business clients and other business contacts are all in the local geographic area where the technician works; or (2) a pattern of reimbursements that deviates significantly from a normal course of cell phone use in the employer’s business (i.e., an employee received reimbursements for cell phone use of $100/quarter in quarters 1 through 3, but receives a reimbursement of $500 in quarter 4).
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