Benefits and Compensation

Cell Phones, Transportation Fringes on IRS To-do List

The IRS’ “to do” list includes writing up a notice on cell phone substantiation and finalizing guidance on debit cards used with qualified transportation fringe benefits (QTFBs), according to its 2011-2012 priority guidance plan published Sept. 2.

Smart Cards

The IRS lists 29 items under the heading, “executive compensation, health care and other benefits and employment taxes.” One of those is guidance under Code Section 132(f) on the use of smart cards, debit cards and credit cards in providing qualified transportation fringe benefits.

On Dec. 18, 2010, the IRS delayed transit smart card guidance until Jan. 1, 2012, making that the fifth year in a row the agency had deferred the effective date of the guidance in Revenue Ruling (Rev. Rul.) 2006-57.

Employers that offer QTFBs, and make smart cards available to their employees to pay for transit and parking, must rely on an exemption to the tax Code’s substantiation rules in Section 132 if they wish to provide public transit “vouchers” in lieu of cash. (The exemption is found in Treas. Reg. §1.132-(9)(b) Q/A-18)

Such a “voucher” system must meet technical requirements with which the smart card issuer — generally, transit agencies — must comply. The IRS says that transit agencies, which provide the best facsimile of a “voucher” in the form of smart cards and other electronic fare media that can be used exclusively to pay for transit and parking, need more time to adapt their technology to the rules. Employers wishing to take a conservative approach may want to continue requiring employees to save receipts until the guidance becomes effective. The IRS has stated, however, that employers can still rely on Rev. Rul. 2006-57 before the official effective date. The delay in the effective date, the agency has said, is to provide relief to the smart card issuers.

Cell Phones

Guidance on the substantiation requirements for employer-provided cell phones has been years in coming. On June 8, 2009, the IRS published a request for public comments on three proposed methods of simplification of cell phone substantiation rules in Notice 2009-46.

IRS Commissioner Doug Shulman called on Congress in July of that year to act “to make clear that there will be no tax consequence to employers or employees for personal use of work-related devices such as cell phones provided by employers.” Since then, Congress has not complied with Shulman’s wish,

The priority guidance plan document does not specify whether the IRS will address one or all of the proposals in Notice 2009-46, but taxpayers should expect some type of announcement from the IRS in the coming year, according to the guidance plan.

In Notice 2009-46, IRS proposes three alternative simplified substantiation methods.

Minimal Personal Use Method, which would allow an employer to deem all of an employee’s usage of an employer-provided cell phone as business usage, provided the employee can establish that he or she maintains and uses a personal (non-employer-provided) cell phone for personal purposes during the employee’s work hours.

Safe Harbor Substantiation 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 would be deemed to be for personal purposes. The IRS and Treasury suggest a deemed business use percentage of 75 percent.

Statistical Sampling Method, which would allow employers to use statistical sampling techniques to measure personal use of an employer-provided cell phone, similar to that provided in Revenue Procedure 2004-29.
The remaining portion of the employee’s usage would be deemed to be for business purposes.

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