WASHINGTON — Small, cheap cellphones have become ubiquitous in the workplace. But federal tax rules governing them date to the days of big handsets, big bills and big hair.
Major employers, including the University of California system, have been hit with bills for hundreds of thousands of dollars in back taxes for violating the anachronistic laws. If the rules aren't changed, many employers say they will stop handing out cellphones to their workers.
The problem stems from the tax code's inability to keep up with technological advances.
When the makers of the 1987 film "Wall Street" wanted to convey corporate raider Gordon Gekko's power and success, they gave him one of the era's most exotic executive perks: a cellphone.
The Motorola DynaTAC 8000X that actor Michael Douglas carried as he strolled along the beach was roughly the size of a brick and cost $3,995 when introduced three years earlier. A call during peak times cost upward of 50 cents a minute.
Times and technology have changed. Federal tax rules have not. The Internal Revenue Service still considers cellphones to be a pricey fringe benefit and has started enforcing regulations beginning in 1989. That's when Congress decided that mobile phones should be treated like company cars and other executive perks: Their personal use qualifies as extra compensation.
The law requires employees to keep detailed records of all calls made on their work-issue cellphones, indicating whether they were business or personal. If they don't, the phone and wireless service are deemed a perk that must be listed as taxable income to the employee.
Most employers were unaware of the rules until the last few years, when the IRS began cracking down and requiring additional taxes to cover the value of the cellphone service provided to employees.
UCLA, for example, was hit with a $239,196 bill this year after IRS auditors found that employees with cellphones were not keeping logs. UC San Diego had to shell out $186,471 for the same reason.
"It's completely unreasonable to have to keep track of calls at that level," said Mike O'Neill, payroll and tax manager for the UC system. "Especially as the costs of these devices have come down, you can get these mega-minute plans where there's really no additional cost" for personal calls.
