The IRS recently issued Notice 2011-72 and a Memorandum for All Field Examination Operations, which provide a road-map for employers to avoid taxing employees on cell phone expenses. Following the de-listing of cell phones as “listed property” under Code section 274(d) last year, there has continued to be some uncertainty on the proper tax treatment of employer-provided cell phones (and reimbursements of cell phone costs) (see http://www.groom.com/resources-542.html).
This guidance, summarized below, clarifies the proper tax treatment and is retroactively effective for cell phone use after December 31, 2009.