Monday, August 18, 2008

Ancient IRS Rule Lurks to Trap Corporate Mobile Phone Users

FDR SSAncient IRS Rule Lurks to Trap Corporate Mobile Phone Users
By John Martellaro

Aug. 18, 2008 (The Mac Observer) -- Much has been made about the readiness of the iPhone for the enterprise. Now that Gartner has declared that it is, organizations that issue that new iPhone to employees should be aware of an old IRS rule that has forced others to pay huge back taxes, according to NPR on Thursday.

The often overlooked IRS rule goes back 20 years to the days when cell phones were rare, expensive and primarily used by elite executives whose company could afford to pay thousands of dollars for brick-sized mobile phones.

The IRS rule says that it's fine for employees who are supplied a mobile phone by their employer to make personal calls. The catch is that they have to properly account for every personal call with detailed logs in order to assess the corresponding taxes.

With the iPhone's personal nature, easy access to the Internet, and many personal uses, such as location services, it's even harder to distinguish personal from corporate use.

In 2007, the University of California at Los Angeles was slapped with a back tax bill for US$240,000 because it couldn't provide such logs. Their remedy was to issue a voucher to each employee, as a job benefit, and let the employees buy their own phones. The tax burden was fully shifted to the employee.

Tax laws are slow to change, but the U.S. Congress is finally dealing with the situation. An change that would address the situation has bipartisan support, but has not yet become tax law. In the meantime, employers who are eager to rollout an iPhone, or any mobil phone to their employees, should be aware of this ancient IRS trap.

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Stephen Martinez

Tax Office

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