IRS Considers Taxing Personal Use of Work Cell Phones

By MARTIN VAUGHAN

WASHINGTON -- The IRS is weighing a proposal to deem one-quarter of employees' use of work cellphones as personal use and therefore subject to tax as a fringe benefit.

The proposal is one of several options the IRS put forward this week on the tax treatment of employer-provided cellphones. Current law already requires that the value of those cellphone services be included in a worker's gross income, unless the employee keeps detailed records showing that the cellphone is used for work only.But as a practical matter, many companies don't enforce the record-keeping requirements. The IRS proposals from this week aim to simplify the requirements and aid enforcement of the law.

The IRS notice might re-energize an effort by cellphone companies such as Verizon Communications Inc. and Sprint Nextel Corp. to repeal the 20-year-old law that classifies work cellphones as a fringe benefit subject to personal income tax.

The IRS in the past couple of years has begun to question employer deductions for cellphone services during tax audits, said Jot Carpenter, vice president of government affairs for CTIA-The Wireless Association, a trade group of cellphone equipment manufacturers and service providers.


Mr. Carpenter has been pressing lawmakers to repeal the requirement, arguing that the current widespread use of cellphones for work wasn't contemplated by the 1989 law, which targeted "CEOs and rich people."

"The idea that you should keep a log saying, 'I made a call saying I will be late for dinner again,' that's a totally cumbersome and burdensome requirement that most employers and employees are not going to comply with," said Mr. Carpenter.


The IRS, in a Monday notice, proposed options intended to simplify the requirement for employers. One proposal is a "safe harbor" that would deem 75% of work cellphone usage to be for work, and 25% to be personal. Under that scenario, employer deductions would be limited accordingly and employees would be taxed on the value of the personal use.

As an alternative approach, employees could satisfy the requirement by showing proof that they maintain a personal cellphone for use during work hours. Or, IRS could set a certain number of minutes that would be considered "minimal personal use" and thus disregarded for tax purposes.


In a third option, employers could use statistical sampling to determine what portion of their workers' use of cellphones is personal and how much work-related.

The IRS will accept comments from the public regarding the proposals until Sept. 4.


The effect on cellphone companies of strict IRS enforcement of the provision could be substantial. For example, companies wishing to avoid problems during audit with IRS could cancel company-wide wireless contracts, and begin reimbursing employees for a portion of their own cell service contracts.

Cellphone companies say that because rates have declined so dramatically in the past decade, and night and weekend calls are free under many plans, it doesn't make sense for the IRS to go after an employee benefit that may amount to nickels and dimes.


"This is a regulation from a bygone time, dating back to the infancy of the cellphone business, and it is in desperate need of updating," said Howard Woolley, senior vice president with Verizon Wireless.

Mr. Woolley said the IRS proposals this week, while welcome, still might burden small businesses. Verizon will continue to press for repeal of the 1989 law, he said.


The IRS didn't respond by publication time to requests for comment on this story.

Besides wireless companies, a diverse coalition including local government groups, college administrators and farm groups is seeking legislation to remove cellphones from the types of property that are taxable fringe benefits, in the absence of strict record-keeping.


Such legislation sponsored by Reps. Sam Johnson (R., Texas) and Earl Pomeroy (D., N.D) passed the House in 2008 but stalled in the Senate. Those lawmakers and Sens. John Kerry (D., Mass.) and John Ensign (R., Nevada) have introduced similar bills this year.

Some universities, including the University of California system, have wound up owing additional payroll taxes because they couldn't substantiate, on IRS audit, that their employees use of cellphones was for work only.


Mr. Johnson said in a statement to Dow Jones Newswires that the IRS proposals don't simply record-keeping enough. "Instead, the Congress should repeal, once and for all, this outdated and costly record-keeping requirement," he said. (Read more inside ..)

How to Save $13,000 a Day

**Your Savings May Vary


"Why I'm Leaving New York"
by Tom Golisano via LewRockwell.com

I love New York. But how much should it cost to call New York home? Decades of out-of-control budgets, spending increases and relentless borrowing have made New York simply too expensive.

Politicians like to talk about incentives -- incentives for businesses to relocate, incentives to buy local and incentives to make smart decisions. After reviewing the 2009 budget, I have identified the most compelling incentive of all: a major tax break immediately available to all New Yorkers. To be eligible, you need only do one thing: move out of New York state.Last week I spent 90 minutes doing a couple simple things: registering to vote, changing my driver's license, filling out a domicile certificate and signing a homestead certificate -- in Florida. Combined with spending 184 days a year outside New York, these simple procedures will save me over $5 million in New York taxes annually.

That savings doesn't include that Florida has a 6 percent sales tax, compared to New York's 8 percent or more. Florida has lower utility taxes and lower gasoline taxes. The Florida homestead certificate guarantees my property taxes will not grow more than 3 percent.

By moving to Florida, I can spend that money on worthy causes, like better hospitals and improving education, and on worthy projects like the Clinton Global Initiative. Or maybe I will continue to invest that money in fighting the status quo in Albany. One thing is certain: That money will not continue to fund Albany's bloated bureaucracy, corrupt politicians or regular handouts to the special interests.

How did we get here in the first place? It all starts with spending, spending and more spending.

BUDGET SPENDING

New York's budget was $72.7 billion in 1999. Ten years later, it has ballooned to $131.8 billion. That growth is astounding, but it continues to get worse. Each year, New York's budget has had 6 percent compounded growth, double the average rate of inflation (2.8 percent). Florida's budget, on the other hand, went down 8 percent this year. HEALTH CARE SPENDING New York spends $2,283 per person on Medicaid. That's the highest per capita spending in the nation and twice the national average. In the last decade, the Medicaid budget has grown by 50 percent ($30 billion in 1999 and $45 billion in 2009). In almost every sector (hospitals, nursing homes, medicine, clinics, and home and community care), spending per recipient regularly exceeds the national average.

Faced with escalating costs and diminishing returns, Albany and their allies, the health care unions (SEIU has over 300,000 politically active members), had only one answer: Increase taxes.

EDUCATION SPENDING

New York spends the most per pupil in America on education, spending 63 percent above the national average. Costs went up about 60 percent in the last decade ($12.7 billion in 1999 and $20.7 billion in 2009). Like health care, education is something worth spending on and worth investing in, but we're spending more and getting less. New York City schools graduated 54 percent of high school students in 2007, Buffalo 47 percent and Rochester 45 percent.

Why? Perhaps it's because the New York state teachers union, with its $114 million budget, is always trying to convince Albany to spend more. Maybe it's because it's mandatory that all teachers pay union dues. Whatever the cause, when faced with potential cuts, the union and their allies have one response: Increase taxes.

LOCAL GOVERNMENT SPENDING

It's not just the state. It's the range and breadth of New York layers of governments and special taxing districts. In New York, the average state and local tax burden is $5,260 for every man, woman and child. That's by far the highest in the country. Like Albany, when faced with a difficult problem, these municipalities have one answer: Increase taxes.

Upstate New York has been particularly hard hit. Add unreasonable real estate taxes to the uncontrolled state spending, and you have whole communities decimated. The assessment process is unfair, unworkable and unreasonable, and the result is that 15 of the 20 highest taxed counties in America are right here in Upstate New York. While homeowners in other areas build equity, we just pay more taxes.

NO ONE'S HOME

This problem did not begin with the current recession. New York faced a $6 billion shortfall before the economic downturn. However, in the face of economic turmoil Gov. Paterson, Speaker Silver and Majority Leader Smith looked to the unions and special interests, who answered with one voice: Raise taxes.

Among other taxes and fees, they raised the marginal tax rate on the most successful (and most mobile) New Yorkers to 8.97 percent, the second highest rate in the nation.

It was irresponsible and it may just prove to be counterproductive, since the top 1 percent of earners account for about 50 percent of state revenue. We're the ones who can -- and will -- leave.

It's not an easy decision, but I'm being forced away from my family and friends, a pain shared by too many parents and grandparents in this state.

I'm leaving. And by domiciling in Florida, I will personally save $13,800 every single day. That's a pretty strong incentive.

Like I said, I love New York, but I'm not going to pay New York more for the waste, corruption and inefficiency that is New York state government.
(Read more inside ..)

IRS Revenue Falls by 34%

From the "Aww that's a shame" file.

Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says. "When the economy slumps, so does tax revenue, and this recession has been no different," says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."

For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago.

"These are staggering numbers," Lynch says. Big revenue losses mean that the U.S. budget deficit may be larger than predicted this year and in future years. "It's one of the drivers of the ongoing expansion of the federal budget deficit," says John Lonski, chief economist for Moody's Investors Service. The Congressional Budget Office projects a $1.7 trillion budget deficit for fiscal year 2009.

Read the full story here (Read more inside ..)

Government Considers National Sales Tax

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax -- called a value-added tax, or VAT -- has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government's budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama's policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

Click here to read the full story (Read more inside ..)