Very Interesting on use of Cell Phones

This was sent to me on 2/2/07. From the IRS Website

Employee Cell Phones : Government employers frequently provide their employees with cellular telephones and pagers to employees to conduct business. This can raise special tax concerns, due to the fact that these items are listed property under the Internal Revenue Code, and because employees may use them for business as well as personal use.

What is listed property? " Listed property"includes items obtained for use in a business but designated by the Internal Revenue Code as lending themselves easily to personal use. This includes automobiles, computers, and entertainment or recreation-related items. In 1989,cellular telephones were added to this category. Although the use of these phones is much more widespread and economical today, they remain listed property and are subject to these restrictions.

For a for-profit business, the designation of an item as listed property has implications for depreciation deductions taken by the business and computation of net income. However, this article focuses on the employment tax issuses raised for employees of government entities.

Substantiation Requirements: To be able to exclude the use by an employee from taxable income from an employer-owned cell phone, the employer must have some method to require the employee to keep records that distinguish business from personal phone charges. If the telephone is used exclusively for business, all use is excludable from income(as a working condition fringe benefit). The amount that represents personal use is included in the wages of the employee. This includes individual personal calls, as well as a pro rata share of monthly service charges.

In general, this means that unless the employer has a policy requiring employees to keep records, or the employee does not keep rcords, the value of the use of the phone will be income to the employee.

At a minimum, the employee should keep a record of each call and its business purpose. If calls are itemized on a monthly statement, they should be identifiable as personal or business, and the employee should retain any supporting evidence of the business calls. This information should be submitted to the employer,who must maintain these records to support the exclusion of the phone use from the employee's wages.