Last week the IRS issued updated guidance on the tax treatment of cell phones provided by employers to employees primarily for "noncompensatory business reasons", defined below, effective for tax years 2010 and later.

AND IT'S ALL GOOD NEWS!

If the phone meets the noncompensatory business reason test, the value of the employee's business and personal use of the phone qualifies as a nontaxable fringe benefit and, in even better news, the employee will not have to keep records of the business use of the phone.

Noncompensatory business use defined:  The notice considers the test to be met if there are substantial reasons relating to the employer's business, other than providing compensation to the employee, for furnishing the phone to the employee. Substantial business reasons include:

• The employer's need to contact the employee for work-related emergencies;
• The employer's requirement that the employee be available to speak with clients when the employee is away from the office.

Nonqualifying reasons for providing cell phones include:

• The promotion of employee morale or goodwill;
• To attract a prospective employee, or
• To provide additional compensation to the employee.

As always, please contact your Purk advisor if you have any questions or need additional information.