The Internal Revenue Service (IRS) has given the University of California permission to suspend implementation of its current policy which treats cell phones and similar mobile communications devices as a taxable fringe benefit. The suspension has been granted until January 31, 2010, at which time the IRS has agreed to consider granting an extension.
The policy implemented this past summer was in response to Internal Revenue Service (IRS) payroll audits at UCLA and UCSD. In settling the audits, the IRS required the University to come into compliance with special substantiation rules governing the use of employer-provided cell phones and PDAs.
The IRS considers cell phone use a taxable fringe benefit to the employee if business and personal use of the phone cannot be substantiated in detail — down to the stated purpose of each business call. In the absence of a call log, the IRS can treat all undocumented calls as personal and the value of those calls as taxable wages, even if the calls were mostly for business.
The UC Office of the President had requested that the IRS allow the University to delay compliance, based on the assumption that Congress would pass legislation that would remove outdated substantiation requirements regarding cell phones. In the meantime, because compliance with the IRS's current substantiation rules would have been impractical, the University agreed to treat University-provided cell phones and similar devices as a taxable fringe benefit subject to withholding for payroll taxes.
Reverting to Previous Policy
Recently, the commissioner of the IRS granted the UC permission to suspend its so-called "imputed income policy," allowing the University to return to its former policy in which:
- UC-provided cell phones and similar communications devices, and accompanying service plans, are direct-billed to the University.
- The cost of the devices and the plans is not regarded as a taxable fringe benefit.
Details of the original policy, which will take effect with earnings paid on October 28, 2009 for biweekly-paid employees and October 30, 2009 for monthly-paid employees, can be found in Business and Finance Bulletin G-46, Guidelines for the Purchase and Use of Cellular Phones and Other Portable Electronic Resources (see Related Information).
Beginning with these pay dates, cell phone imputed income and cash allowances received by employees with University-provided cell phones and similar communications devices that are cell phone-enabled should be cancelled. Cell phone imputed income and cash allowance DOS codes established in the payroll system for employees with University-provided cell phone equipment should be modified to include an end date of October 3, 2009 for biweekly-paid employees and an end date of September 30, 2009 for monthly-paid employees.
In addition, individuals who have been granted exceptions to the imputed income policy will no longer be required to document the business use of their cell phones or PDAs beginning on October 1 and October 4 for monthly- and biweekly-paid employees, respectively. Note that the reinstatement of the old policy is not retroactive and therefore does not apply to earnings paid prior to October 28 or October 30.