The IRS has issued new guidance designed to clarify the tax treatment of employer-provided cell phones and similar telecommunications devices. The guidance relates to a provision in the Small Business Jobs Act of 2010 that removed cell phones from the definition of “listed property” – a category under tax law that normally requires additional recordkeeping by taxpayers.

In a vivid example of comparing apples and oranges, before the 2010 law was enacted, cell phone use triggered the same strict substantiation rules that apply to business use of motor vehicles; in other words, you had to track your business and personal use in order to claim deductions. The 2010 law removed such requirements for cell phones and similar communication devices and treats employer-provided devices as tax-free fringe benefits – as long as certain requirements are met.

When an employer furnishes an employee with a cell phone primarily for non-compensatory business reasons, the business and personal use of the cell phone is generally not taxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment (IRS Notice 2011-72).

What does the IRS consider business reasons? The tax agency listed some possible scenarios:

• An employer needs to contact the employee at all times for work-related emergencies.

• An employer requires that an employee be available to speak with clients at times when the employee is away from the office.

• An employee needs to speak with clients located in other time zones at times outside of his or her normal work day.

Conversely, the cell phone costs may not be deductible, says the IRS, if the employer provides the phone “to promote the morale or good will of employees, to attract a prospective employee, or as a means of furnishing additional compensation to an employee.”

Employee-owned Phones. The IRS is taking a similar administrative approach that applies when businesses give cash allowances and reimbursements for work-related use of personally owned cell phones.

Under this approach, employers that require employees to use personal cell phones for the benefit of the employer may treat, as non-taxable, reimbursements of the employees’ expenses for reasonable cell phone coverage. This treatment does not apply to unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee’s regular wages.