The Internal Revenue Service (IRS) has granted a fourth extension, allowing the University of California to continue suspending implementation of its current policy, which treats cell phones and similar mobile communications devices as a taxable fringe benefit. This latest extension runs through November 30, 2010.
The extensions were granted because IRS Commissioner Doug Shulman and Treasury Secretary Timothy Geithner, among others, want to eliminate the tax on personal use of employer-provided cell phones. However, Congress has not yet passed legislation to make this change happen.
The UC 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.
Under its own current rules — which the IRS wants to change — cell phone use is 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the University to suspend compliance, based on the assumption that Congress would pass legislation that would remove outdated substantiation requirements regarding cell phones.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.
Effect of the IRS Extensions
The IRS extensions allow the UC to delay compliance by suspending its so-called "imputed income policy." The IRS is permitting the University to revert 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.
The IRS has decided to shelve plans to draft guidance on employer-provided cell phones until Congress passes legislation on the issue.
Until further notice, the University will continue to follow its former cell phone policy published in Business and Finance Bulletin G-46, Guidelines for the Purchase and Use of Cellular Phones and Other Portable Electronic Resources (see Related Information).
If you have any questions, please contact Scott Monatlik, UCLA’s Director of Tax Services, at (310) 794-6724.