Advisory Committee on Tax Exempt and Government Entities (ACT ...

Tax Treatment Of Cellular Telephones And Internet-Provider AllowancesI. EXECUTIVE SUMMARY The Internal Revenue Service (IRS) FY 2008 Federal State and Local GovernmentWork Plan, (IRS Work Plan) dated October 1, 2007, includes a statement in itsExecutive Summary which says that “The Office of Federal, State and LocalGovernments (FSLG) supports the Internal Revenue Service (IRS) and the Tax Exemptand Government Entities (TEGE) Division strategic goals of:1) Enhancing Enforcement of the Tax Laws;2) Taxpayer Education and Outreach; and3) Modernizing the IRS through its People, Process and Technology.”The IRS Work Plan goes on to describe the various work plan areas which will beaddressed, including the general steps which are expected to be taken to accomplishthe goals of the IRS. The ultimate goal, of course, is to have greater taxpayercompliance in the recording and reporting of all matters involving the Internal RevenueCode (IRC).One particular area of transaction recording and financial reporting which has beenproblematic for many employers, both governmental and non-governmental, has beenthat of employer-provided cellular telephones and internet provider allowances. Thedifficulty in properly recording and reporting these transactions stems from somegeneral lack of awareness about “listed property” (see IRC Section 280F), and theadvances made in the cellular telephone and internet provider industries over the pastdecade. The advancements in technology have resulted in a number of employerschanging their traditional definition of “workplace”, which no longer requires that anemployee sit at a desk in a “brick and mortar” building. The advent of new technologieshas allowed for a huge expansion in the availability of cellular telephones, and internetprovider allowances for employees. These employer-provided tools have also created arecording and reporting fiasco for employers.The purpose of this year’s report of the FSLG Subcommittee of the IRS <strong>Advisory</strong><strong>Committee</strong> on Tax Exempt and Government Entities (ACT), is to: a) raise awarenessthat the inclusion of cellular telephones and internet provider allowances as listedproperty in IRC Section 280F may be outdated given the technological advancementsthat have occurred within the respective industries; and b) offer a comparison andcontrast with the permissive de minimis allowances of personal use of the desktoptelephone and computer within the IRC. The report will also offer several options forconsideration by the IRS as to how best to administer the IRC as it is currently written,raise the awareness of the recording and reporting requirements with employers toencourage better compliance; and, suggest that the Department of Treasury consider alegislative change which would remove cellular telephones and internet providerallowances from the definition of listed property included in IRC Section 280F.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 Page 1