IRS Scrutiny of Mobile Use Creates TEM Opportunity

Businesses of all sizes and types should have some sort of mobile device policy; if they don’t, they need one or the tax man may come a’ callin’. IRS scrutiny of corporate mobile phone usage is yet another opportunity for partners to sell telecom expense management solutions.

Mobile phones are given the “listed property” designation by the IRS, which means they can be used for both business and personal use. Analysts with Aberdeen Group explained this designation was created to ensure only the business usage of the device can be properly depreciated. The IRS designation was set forth in a time when mobile devices were expensive and uncommon; but, as Aberdeen Group explained, the plummeting cost of mobile phones and devices has “rendered the depreciation of these assets to be immaterial for most organizations.”

However, organizations still are required to maintain proper documentation for listed property, tracking its personal or business use. “There are still considerable issues from an employment tax standpoint that enterprises need to be aware of in shaping their mobility usage, compensation and account payment policies,” said the Aberdeen analysts, Ralph A. Rodriguez and Hyoun Park.

Proper expense management and separation of usage are keys to avoiding an audit in this area. “Because the IRS considers mobile devices easily used for both personal and business use, they do not allow for the usage on mobile phones as a deduction on corporate tax returns,” said Missy Sue Mastel, president of telecom expense management firm Mass-Tel Communications Inc. “In fact, they classify a corporate-provided cell phone as a taxable benefit to the employee.”

Mastel said The University of California, San Diego recently had to pony up $186,500 for back taxes and failing to keep logs of end users’ cell phone usage; The University of California, Los Angeles also agreed to pay $239,200 for the same reason.

These examples are evidence that proactive TEM solutions are worth the money they cost on the front end in preventing back-tax woes. It also presents another opportunity for partners to become trusted advisers for their customers. Most companies don’t even realize this is a real and costly risk. The Aberdeen Group report revealed only 23 percent of respondents to a 2008 TEM survey considered IRS-listed property requirements to be a medium-to-high priority for their mobile devices.