The IRS has released guidance (Notice 2011-72) regarding the tax treatment of employer-provided cell phones which will, in most cases, reduce employer and employee record keeping requirements.

The new guidance states that when a cell phone is provided to an employee primarily for noncompensatory business reasons, the IRS will treat the employee's use of the cell phone for reasons related to the employer's trade or business as a working condition fringe benefit, and the value of any personal use of a cell phone provided by the employer will be excludable from the employee's income as a de minimis fringe benefit.

A cell phone provided by an employer will be considered to be provided for noncompensatory business purposes if there are substantial reasons relating to the employer's business, other than providing compensation to the employee such as (1) the employer's need to contact the employee at all times for work-related emergencies;
(2) the employer's requirement that the employee be able to speak with clients at times when the employee is away from the office, or (3) the employee's need to speak with clients located in other time zones at times outside of the employee's normal work day.  These examples are all possible substantial noncompensatory business reasons for an employer to provide a cell phone to an employee.

The Notice provides that, solely for purposes of determining whether the working condition fringe benefit provision applies, the substantiation requirements that the employee would have to meet in order for a deduction under Section 162 to be allowable are deemed to be satisfied.  The rules of this notice apply to any use of an employer-provided cell phone occurring after December 31, 2009.

Please note that Notice 2011-72 states that a cell phone provided merely to promote the morale or good will of an employee, to attract a prospective employee or as a means of furnishing additional compensation to an employee is not provided primarily for noncompensatory business purposes.           

If you have any questions or need clarification on the IRS guideline regarding tax treatment of employer-provided cell phones and how this will affect your company, please contact our office.