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U.S. Master™ Wage-Hour Guide, 2009 Edition 
Presents a first approach to the broad and complex controls under the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), and other statutes regulating employee wages and hours.
The IRS has issued a notice and request for comments regarding several proposals to simplify the procedures under which employers substantiate an employee’s business use of employer-provided cellular telephones or other similar telecommunications equipment (cell phones). The notice also requests suggestions for alternative approaches to simplify the procedures under which employers substantiate an employee’s business use of employer-provided cell phones.
Background
If an employer provides a cell phone to an employee, and the employer acquires and pays the costs of using the cell phone, the employee receives a fringe benefit. To the extent that the employee uses the employer’s cell phone for business purposes, the fair market value of such usage qualifies as a working condition fringe benefit excludable from the employee’s gross income and the cell phone expense is a deductible business expense for the employer, provided that the substantiation requirements of Code Sec. 274(d) are met. However, to the extent the employee uses the employer’s cell phone for personal purposes, the fair market value of such usage is includable in the employee’s gross income. The employer’s cost to provide the cell phone is not determinative of the fair market value of the benefit received by the employee.
The IRS and Treasury Department are considering the following proposals to simplify the Code Sec. 274(d) substantiation requirements applicable to employee usage of employer- provided cell phones.
Simplified substantiation methods
The IRS and Treasury Department are considering three alternative methods to simplify the substantiation requirements applicable to employee usage of employer-provided cell phones: a minimal personal use method, a safe harbor substantiation method, and a statistical sampling method (or a combination of them). Any simplified cell phone substantiation method will be optional; taxpayers may continue to comply with current Code Sec. 274(d) substantiation requirements.
Minimal personal use method. The IRS and Treasury Department are considering two proposals that would allow an employer to deem all of an employee’s usage of an employer-provided cell phone as business usage. Under the first proposal, the entire amount of an employee’s use of an employer-provided cell phone would be deemed to be for business purposes if the employee can account to his or her employer with sufficient records to establish that the employee maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee’s work hours.
Alternatively, the second proposal would define a specified amount or type of “minimal” personal use that would be disregarded in determining the amount of personal use of an employer-provided cell phone. For example, “minimal” could be defined by reference to a particular number of minutes of use or for certain personal purposes.
Safe harbor substantiation method. The IRS and Treasury Department are considering a safe harbor method under which an employer would treat a certain percentage of each employee’s use of an employer-provided cell phone as business usage. The remaining percentage of use would be deemed to be for personal purposes. For this proposal, the IRS and Treasury Department propose a business use percentage of 75%.
Statistical sampling method. The IRS and Treasury Department are considering a proposal that would allow employers to use statistical sampling techniques to measure an employee’s personal use of an employer-provided cell phone. In general, an employer could use an approved statistical sampling methodology similar to that provided in Rev. Proc. 2004-29 to determine the percentage of personal use of employer-provided cell phones. The employer would multiply that percentage times the value of each employee’s total usage to determine the value of personal usage. The remaining portion of the employee’s usage would be deemed to be for business purposes.
Simplified fair market value determination
To the extent that an employee’s use of an employer-provided cell phone does not qualify as a working condition fringe benefit (because the employer does not satisfy Code Sec. 274(d) or the cell phone is used partially for personal purposes), the fair market value of an employee’s use of the employer-provided cell phone is a taxable fringe benefit that is includable in the employee’s gross income. An employer’s cost to provide the cell phone is not determinative of the fair market value of an employee’s fringe benefit. The IRS and Treasury Department are interested in understanding the methods employers currently use to arrive at the fair market value to an employee of an employer-provided cell phone. The IRS and Treasury Department are considering whether a simplified valuation method would be helpful and appropriate to determine such fair market value.
Request for comments
The IRS and Treasury Department request public comments on the proposals contained in the notice and suggestions for other approaches for modifying and simplifying the substantiation requirements applicable to employee usage of employer-provided cell phones. The IRS and Treasury Department are particularly interested in any comments regarding:
Comments must be submitted in writing on or before September 4, 2009, and should include a reference to Notice 2009-46. Submissions should be sent to: Internal Revenue Service Attn: CC:PA:LPD:PR (Notice 2009-46), Room 5203 P.O. Box 7604 Ben Franklin Station Washington, DC 20044
Submissions also may be hand delivered Monday through Friday between the hours of 8a.m. and 4p.m. to: CC:PA:LPD:PR (Notice 2009-46), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, N.W., Washington, DC. Alternatively, comments may be submitted electronically directly to the IRS via the following e-mail address: Notice.comments@irscounsel.treas.gov. Please include “Notice 2009-46” in the subject line of any electronic communication. All comments will be available for public inspection and copying.
(IRS Notice 2009-46, IRB 2009-23, June 8, 2009.)
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