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Work Cell Phone Tax to Be Repealed? IRS and Treasury Now Want It Gone

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By Caleb Groos on June 17, 2009 12:09 PM

Since last weekend, we've had headlines about the IRS coming after taxes owed for personal use of work issued cell phones. Now it looks like that tax may go the way of the dinosaur. Both the IRS and the Treasury Department have asked Congress to repeal it.

Under the current tax code, work issued cell phones are considered taxable fringe benefits to the extent to which employees use them for personal calls. Technically, an employee owes tax on the value of the personal calls made, and for work-related calls the employer can deduct the cost as a business expense.

A key problem that has prevented adequate collection of this tax has been how burdensome it would be for the employer or employee to allocate the exact cost of personal versus work use of a cell phone. The result: many ignore the tax and it goes unpaid. However, this can and has led to large tax liabilities for employers who ignored the rule.

Enter last week's proposals issued by the IRS. The IRS put forth multiple options for how employers could account for the phones, with the most prominent being an across the board assignment of 25% work cell phone cost to personal (taxable) use. It also sought input as to how the split could best be measured.

Well, in response to the options proposed, the IRS did receive comments -- outrage and bad press enough to make the IRS agree that the tax should be repealed.

Why the change? "The passage of time, advances in technology and the nature of communication in the modern workplace have rendered this law obsolete," IRS Commissioner Doug Shulman said in a statement quoted by the AP. Though it may appear that by "passage of time" Shulman is referring to the time between June 8 and June 16, he more likely means since 1989, when the tax became law (and those enormous car phones were considered a perk).

Now the IRS and Treasury Secretary Tim Geitner have asked Congress to repeal that portion of the tax code.

Good news for small businesses who issue work phones and their employees -- perhaps one less thing to think about come tax time.

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