IRS Issues Guidance on Cell Phones

Over the past few years, there is little doubt that the tax treatment of employer-provided cell phones has raised more concerns for churches and ministers than any other single issue. Are church-provided cell phones taxable to the minister or staff members? While the Small Business Jobs Act of 2010 removed cell phones from the definition of “listed property,” a category under the law that normally requires additional recordkeeping by taxpayers, the Internal Revenue Service has not provided guidance previous to now on how those new rules were to be applied.

In an official Notice issued by the Internal Revenue Service on September 14, 2011, the IRS provided guidance on treating employer-provided cell phones as an excludible fringe benefit. The Notice states that when an employer provides an employee with a cell phone primarily for non-compensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS noted that they will not require recordkeeping of business use in order to receive this tax-free treatment.

Simultaneously with the Notice, the IRS announced in a memo to its examiners a similar administrative approach that applies with respect to arrangements common to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for non-compensatory business reasons, to use their personal cell phones for business purposes may treat reimbursements of the employees’ expenses for reasonable cell phone coverage as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee’s regular wages.

Under the guidelines issued by the Internal Revenue Service, where employers provide cell phones to their employees or where employers reimburse employees for business use of their personal cell phones, tax-free treatment is available without burdensome recordkeeping requirements. The guidance does not apply to the provision of cell phones or reimbursement for cell-phone use that is not primarily business related, as such arrangements are generally taxable.

Many more details on this issue can be found in the memo and in Notice 2011-72 issued by the Internal Revenue Service.

Simply stated for our purposes, if the church provides the pastor or staff member with a cell phone or reimburses the pastor or staff member for using their own cell phone, the value of such will not be taxable income to the pastor or staff member as long as such is not provided as compensation and the use of the phone is primarily for business purposes.

About benefitsboard

Art Rhodes is the President and CEO of the Church of God Benefits Board, Inc. - the administrator of the Ministers' Retirement Plan and the Church Loan Fund, Inc. The corporate offices of the Benefits Board are in Cleveland, TN.
This entry was posted in Cell Phones, Expenses, Internal Revenue Service. Bookmark the permalink.

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