In Notice 2009-46, Substantiating Business Use of Employer Provided Cell Phones, the Internal Revenue Service requested comments from the public on several proposals for simplifying employer documentation of an employee’s business use of an employer-provided cell phone. For this purpose, the term “cell phone” includes similar telecommunications devices such as iPhones, Blackberries, and Windows Mobile Devices. An employee’s business use of an employer-provided cell phone is excludible from the employee’s income, but the fair market value of any personal use is includible in the employee’s taxable income.
The IRS is considering three methods for an employer to use to value such use of a cell phone. First is the “Minimal Personal Use Method” which might require an employee to establish use of a personal cell phone for personal use during business hours or a showing that the business cell phone was used for less than a certain established limit for personal use. Secondly, the “Safe Harbor Substantiation Method” would require a certain amount, such as seventy-five percent (75%), to be treated as business use. Finally, under the “Statistical Sampling Method”, an employer could use a statistical sampling method (subject to IRS approval) to determine an average employee business use percentage.
The IRS is also looking for a method to value the employee’s personal use for tax purposes. The IRS states that the employer’s cost “is not determinative of the fair market value of an employee’s fringe benefit.”