IRS Issues Guidance Permitting Tax-Free Treatment of Employer-Provided Cell Phones and PDAs


The Internal Revenue Service (IRS) provided welcome and practical relief to businesses with the September 14 release of Notice 2011-72 (the Notice), which eliminates all recordkeeping requirements in connection with employer-provided cell phones and "other similar telecommunications equipment" that are provided to employees primarily for business purposes.

Pursuant to the Notice, for tax years after 2009, employee use of cell phones and other similar telecommunications equipment (such as PDAs, BlackBerrys, smart phones, and the like) and their related calling/data plans (collectively referred to as "cell phones" in this LawFlash) provided primarily for "non-compensatory business purposes" is treated as follows:

1. The business use is excludable from the employee's income as a working condition fringe benefit.

2. Any personal use is excludable as a de minimis fringe benefit.

Neither the business or personal use is subject to recordkeeping.

The IRS also released a Field Exam Memorandum (Control No. SBSE-04-0911-083) to its examiners regarding the proper treatment of employer reimbursements for personal cell phone usage, described below.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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