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IRS: Cell Phone Services Provided to Employees Excludible from Income

By Christa Bierma and Debera Salam

The IRS has modified its position on the tax treatment of cell phone services and similar telecommunications equipment usage (“cell phones”) that employers provide to employees primarily for noncompensatory business reasons. The value of the use of such cell phones ' a category that an IRS official has recently suggested may include tablet devices ' is now excludible from employees' income as a working condition fringe. In addition, the personal use of such cell phones is also excludible from the employees' income.

As a general matter, gross income includes fringe benefits unless they are specifically excluded. One of these exclusions is any fringe benefit that qualifies as a working condition fringe, meaning any property or services provided to an employee to the extent that, if the employee paid for such property or services, the payment would be allowable to the employee as a business deduction. A deduction is allowed for all the ordinary and necessary expenses paid or incurred during the tax year in carrying on any trade or business.

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