New IRS Notice Clarifies Tax Treatment of Employee Mobile Phones

January 11, 2012

New IRS Notice Clarifies Tax Treatment of Employee Mobile Phones

IRS Notice 2011-72, issued Wednesday, September 14, removes a recordkeeping burden long perceived as onerous by employees who have been provided with cell phones and other mobile telecommunication devices by employers. For many years, these devices were treated as “listed property,” a tax classification which required employees to undergo the time-consuming process of distinguishing between the personal and business-related use of these devices.

The Small Business Jobs Act of 2010 removed mobile devices from the “listed property” category, but did not offer clear guidance for their future treatment after December 31, 2009. Wednesday’s IRS notice states that mobile devices provided to employees primarily for non-compensatory purposes represent an excludible fringe benefit and will be non-taxable to employees. Employee recordkeeping is no longer required.

The IRS released a memo the same day, providing guidance to IRS examiners as to the tax consequences of employer reimbursements to employees for the business use of employees’ personal mobile devices (i.e. devices NOT provided by employers). The guidance recommends that tax examiners “analyze reimbursements of employees’ mobile devices in a manner that is similar to the approach described in IRS Notice 2011-72.” Employees will still need to document that the amount of reimbursement did not exceed expenses incurred to maintain the device.