IRS Requests Comments on Simplified Cell Phone Substantiation Rules

By Alistair M. Nevius, J.D.

In Notice 2009-46, the IRS requested comments on three new proposed methods that would simplify the substantiation requirements for employee use of employer-provided cell phones. All three methods would require that employers maintain a written policy prohibiting more than minimal personal phone use.

Generally, employees must include in income the fair market value (FMV) of fringe benefits provided by their employer, to the extent the value of the fringe benefit exceeds the amount the employee paid for the benefit plus the amount specifically excluded from income by the Code. Under Sec. 132(a)(3), employees may exclude the FMV of cell phone use from income as a “working condition” fringe benefit but only to the extent that, if the employee had paid for the cell phone use, the payment would be deductible under Sec. 162 (trade or business expenses) or Sec. 167 (depreciable property).

The Code defines cell phones as listed property (Sec. 280F(d)(4)). Under Sec. 274(d)(4), employers are not allowed a deduction for listed property expenses unless the employer can adequately substantiate the amount, use, and business purpose of the expense. The same substantiation requirements apply to excluding from the employee’s income the value of the phone as a working condition fringe benefit.

Minimal personal use method: Two proposals under this method would allow an employer to deem as business use all employee use of an employer-provided cell phone:

  • The employee also had his or her own personal cell phone and could provide records showing that the personal cell phone was used for personal calls during work hours; or
  • An as yet unspecified minimal amount of personal use would be disregarded in determining the amount of personal use of an employer-provided phone.

Safe-harbor method: The employer could treat a cell phone issued to an employee as used 75% for business and 25% for personal use.

Statistical sampling method: The employer could use an approved statistical sampling method to determine the percentage of personal use.

The Service is open to other suggested methods and is requesting comments on the proposed methods. It is particularly interested in comments regarding:

  • Provisions in an employer’s written policy governing the use of employerprovided cell phones;
  • The types of employee records sufficient to establish that the employee maintains and uses his or her own cell phone for the first proposal of the minimal personal use method;
  • How to define the amount and type of personal use that should be disregarded under the second minimal personal use method;
  • Any other appropriate ratio of business use to personal use for the safe-harbor method; and
  • Methods currently used for determining the FMV of cell phone use.

After the release of the notice, IRS Commissioner Doug Shulman stated that taxpayers should not infer that the IRS is “cracking down” on employee use of employer-provided cell phones. He also stated that the current law is “obsolete” and he urged Congress to amend the Code to ensure that there is no tax consequence to employees or employers for personal use of work-related cell phones ( article/0,,id=209795,00.html).

Tax Insider Articles


Business meal deductions after the TCJA

This article discusses the history of the deduction of business meal expenses and the new rules under the TCJA and the regulations and provides a framework for documenting and substantiating the deduction.


Quirks spurred by COVID-19 tax relief

This article discusses some procedural and administrative quirks that have emerged with the new tax legislative, regulatory, and procedural guidance related to COVID-19.