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

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Tax Treatment Of Cellular Telephones And Internet-Provider AllowancesIV.RECOMMENDATIONSThe IRS has the authority to issue guidance to interpret the Code. Guidance is neededby all taxpayers for the dilemma of personal usage of employer provided cell phones. Itis clear that when the ‘listed property’ provision of the Code specifically included ‘cellphones’ there was no method to determine the extent of the popularity of the cell phoneand its use for business purposes. There is a presumption of business use when anemployer provides an employee with a cell phone. This presumption is undeniable in itsnature – there is a business purpose. To require an over burdensome process ofattempting to identify each and every incoming and outgoing phone call to meet theaccountable plan rules is not current with the business environment as it exists today.We suggest the IRS issue interpretative guidance that would permit an employer toperform statistically valid sampling and this sampling method be described by the IRS inits guidance. Further, this prescribed method of sampling would suffice an examinationby the IRS. Lastly, these samplings need only be performed once over a time periodsuch as every 2 – 4 years and retain its validity for examination purposes. Thissampling is the same effort the IRS performs during an exam on this issue and a benefitwould be a shorter cycle time for the completion of an exam by the IRS if the samplingmethod was described adequately in the guidance.We also suggest that external groups such as the Government Finance OfficersAssociation (GFOA), the National Association of State Comptrollers and Treasurers(NASACT), and various other trade and industry groups pursue an effective lobbyingeffort to change the legislation to reflect current business operating conditions torecognize the extent of cell phone usage by businesses. That is, we are recommendingthat cell phones be removed from ‘listed property’ as defined in the Code. This willprovide a commonality of tax treatment among all taxpayers that are now being treateddifferently depending on their work location or if they are issued a cell phone.It is also worth noting that on February 7, 2008, Treasury Secretary Henry Paulsonindicated that “… he was interested in a congressional proposal designed to modernizethe Internal Revenue Code to recognize the growth of business-use mobilecommunications devices”. This issue has been noticed by House Ways and Means<strong>Committee</strong> member Sam Johnson (R-Texas) and was the topic of his discussion at aHouse Ways and Means hearing on President Bush’s fiscal year 2009 budget proposal.In this regard, Representative Johnson (R-Texas) introduced H.R. 5450 to amend theInternal Revenue Code of 1986 to remove cell phones from listed property under IRCSection 280F. The FSLG Subcommittee commends this action and would support itsextension to include the removal of computer or peripheral equipment (as defined inSection 168(i)(2)(B)), which appears as “listed property” at IRC Section 280(d)(4)(A)(iv).ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 Page 8
IRC, 2007-CODE-VOL, SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXUR... Page 1 of 7Pension - Primary Sources - Current Internal RevenueCode - Subtitle A --Income Taxes [Secs. 1-15631 - CHAPTER 1 --NORMALTAXES AND SURTAXES [Secs. 1-1400Tl- Subchapter B --Computation of Taxable Income [Secs. 61-2911 - PART IX --ITEMS NOTDEDUCTIBLE [Secs. 261-280Hl-IRC, 2007-CODE-VOL, SEC. 280F. LIMITATION ON DEPRECIATION FORLUXURY AUTOMOBILES; LIMITATION WHERE CERTAIN PROPERTY USEDFOR PERSONAL PURPOSES.SEC. 280F. LIMITATION ON DEPRECIATION FOR LUXURY AUTOMOBILES; LIMITATION WHERE CERTAINPROPERTY USED FOR PERSONAL PURPOSES.280F(a) LIMITATION ON AMOUNT OF DEPRECIATION FOR LUXURY AUTOMOBILES. --280F(a)(l) DEPRECIATION. --280F(a)(l)(A) LIMITATION. --The amount of the depreciation deduction for any taxable year for anypassenger automobile shall not exceed --280F(a)(l)(A)(i) $2,560 for the 1st taxable year in the recovery period,280F(a)(l)(A)(ii) $4,100 for the 2nd taxable year in the recovery period,280F(a)(l)(A)(iii) $2,450 for the 3rd taxable year in the recovery period, and280F(a)(l)(A)(iv) $1,475 for each succeeding taxable year in the recovery period.280F(a)(l)(B) DISALLOWED DEDUCTIONS ALLOWED FOR YEARS AFTER RECOVERY PERIOD. -280F(a)(l)(B)(i) IN GENERAL. --Except as provided in clause (ii), the unrecovered basis of anypassenger automobile shall be treated as an expense for the 1st taxable year after the recovery period.Any excess of the unrecovered basis over the limitation of clause (ii) shall be treated as an expense inthe succeeding taxable year.280F(a)(l)(B)(ii) $1,475 LIMITATION. --The amount treated as an expense under clause (i) for anytaxable year shall not exceed $1,475.28OF(a)(l)(B)(iii) PROPERTY MUST BE DEPRECIABLE. --No amount shall be allowable as adeduction by reason of this subparagraph with respect to any property for any taxable year unless adepreciation deduction would be allowable with respect to such property for such taxable year.280F(a)(l)(B)(iv) AMOUNT TREATED AS DEPRECIATION DEDUCTION. --For purposes of this
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