Cellphones no longer a luxury

The LA Times has a great story this morning about how the obsolete tax treatment of cellphones is causing hassles for employers and employees:

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.

Of course, what’s new is not the law but the IRS decision to start enforcing it by sending employers tax bills for this “fringe benefit.” Reporter Jim Puzzanghera reports the story in the context of the University of the California, where 8% of its employees have UC-provided cellphones.

This onerous record keeping is an example of the tax code at its most asine — a negative sum drag on the economy, in which the taxes collected will hardly pay for the cost of compliance by IRS auditors, UC pencil pushers and of course the individual employees.

HR. 5450 was introduced earlier this year by Rep. Sam Johnson to repeal this rule. Small business accountants applauded this temporary burst of Congressional sanity.

Alas, such sanity was only temporary. Not surprisingly for this Congress, the PayGo guidelines were used as an excuse to impose onerous record keeping somewhere else. With this addition, Johnson voted against his own bill when it passed the House in April.

Perhaps our “elected representatives” (i.e., self-perpetuating ruling class) will see fit to eliminate this obviously foolishness without substituting a less obvious one. Given the rise of Nanny State thinking in D.C., somehow I doubt it.