IRS defends tax proposals for work cell phones

The Internal Revenue Service is defending proposals to tax a portion of work-provided cell phone bills, saying that the proposed changes to a 1989 law are aimed at making it easier for businesses to comply and are not about taxing workers. The proposals have drawn opposition from wireless carriers.

The IRS is proposing that employers declare 25 percent of an employee's annual cell phone expense as a taxable benefit. The law mandated that workers who use company-provided cell phones for personal calls count the value of those calls--i.e. that portion of the bill--as income, and then pay taxes on that income. However, employers and their employees have long ignored the rule.

"The motivation for the notice is to clarify how employers can justify a deduction. It wasn't aimed at employees," a senior IRS official told Dow Jones Newswires. "At the time this was enacted, every single call cost $4 or $5. That is not the world we live in anymore. We've been hearing from companies that [the requirement] is too burdensome. We needed to think about how we could make it less expensive."

Wireless carriers, including Sprint Nextel and Verizon Wireless, are understandably nervous about the proposal, which might result in enterprise clients cancelling wireless contracts for fears of tax problems, and instead reimbursing employees for a portion of their wireless bills. The carriers argue the rule is outdated anyway, since rates have declined and and night and weekend minutes are free on most plans.

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