Taxes

IRS Nostalgic for Time When Greed Was Good

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The IRS has dusted off a 1989 rule that treats cell phones like an exotic corporate perk, lumping a company cell phone in with private jets and corporate limos. Careful logs are supposed to be kept of such perks and the business justification for their use, lest companies chauffeur around their execs to dates and country houses in lieu of paying them in taxable income.

The cell phone rule dates from a slower, gentler, bulkier time:

Is this a personal call?

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.

Recently the IRS decided to revive the rule, and has been hitting employers with big fines for inadequate record-keeping. UCLA, for instance paid 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." This, coincidentally, was the same amount as Gekko's monthly phone bill.

But never fear! Change is rumbling in the bowels of government, with Treasury Secretary Hank Paulson conceding that a change in the rules "like the right idea to me."

Via Jacob Grier.

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  1. I used to complain about this constantly in the late nineties and everyone looked at me like I was crazy. Well, I mean, crazier than I normally am.

  2. Government, turns on dime.

    And so many people think of government as a progressive force.

  3. Caption Contest!

    “I don’t want to be your friend, Rick. I just want a little breakfast?”

  4. Caption Contest!

    What? Just a bathrobe. What did you say your last name is Michael? Moore? Sounds made-up, but OK…you want me to describe WHAT now?

  5. I notice the fines were against universities, not businesses. I imagine such “perks” would be fought in courtrooms at a high cost to the IRS if any big business was subjected to that antiquated rule. “Largely left alone” were regular businesses, according to the article. Can’t imagine why.

  6. jon,

    Because no one loses money if UCLA has to pay a huge fine? Well, except the California taxpayers.

    Sort of like why government agencies don’t put up much of a fight against unionization efforts, compared to private employers.

  7. sage,

    I can imagine kids watching that movie today saying, “why doesn’t this guy just use his cell phone?”.

  8. I had lost my cell phone (curse you, NYC!) and was fighting with my provider to give me a new phone cheap or free or let me out of my contract, when I borrowed my sis-in-law’s old phone for temp use. We met some friends out for a birthday or something and I brought her phone. Some guys at another table asked me how close I lived to the bar that I could receive calls on my home phone. Hysterical.

  9. Then I had a MicroTac and then a StarTac.

    Zack Morris was my cousin. Our grandfather was loaded and always made sure we had the latest phone so we could order pizza. I didn’t go to Bayside though. I was on the beach- ocean side.

  10. Computers are supposed to be treated the same way: all use is considered personal use (and thus taxable to the user) unless documented. It’s interesting they’re going after universities, since historically they’ve only gone after small businesses. Big businesses can have hundreds of employees surfing the net or making personal calls on company cell phones and not have to keep logs, while at the same time the IRS is conducting detailed audits of a small business’ usage logs.

  11. Actually this has been extensively discussed on the university IT listservs that I frequent, and most universities have stopped supplying cellphones, even to folks who would actually need them (like the guys who keep the mail servers and the campus network running, who often have to come in on nights and weekends). And it’s true that laptops are technically in the same category, but everyone’s just ignoring that fact (both the universities and the IRS). Makes even less sense.

  12. Actually, corporate perks (which by no means are limited to executives) going un-taxed is a fairly serious problem. I know most of you are libertarians and against most taxes, but every time someone uses these perks for personal use, it IS income. The fact that it goes untaxed just means that taxes on everyone have to be raised to make up for the shortfall.

  13. Wow that is like totally crazy dude. IO mean really. Think about it.

    Jim Woods
    http://www.Ultimate-Anonymity.com

  14. Chad-

    Horror of Horrors!

  15. “The fact that it goes untaxed just means that taxes on everyone have to be raised to make up for the shortfall.”

    If I’m being mugged, I’m not going to tell the mugger about the “c” note in my shoe. He’ll just have to make up his shortfall from someone else.

  16. Actually, corporate perks (which by no means are limited to executives) going un-taxed is a fairly serious problem. I know most of you are libertarians and against most taxes, but every time someone uses these perks for personal use, it IS income. The fact that it goes untaxed just means that taxes on everyone have to be raised to make up for the shortfall.

    Absolutely! Let’s calculate the value of my using the company microwave to heat up my lunch. Oh! Don’t forget the cool refreshing water in the water cooler as well! We’ll have that budget deficit eliminated in no time!

  17. Still putting off getting one. When they get to be the size of a thimble and cost $3 a month I’ll be all over it.

  18. Chad,

    What happened to you in childhood that caused this propensity for boot-licking?

    -jcr

  19. Do the IRS employes have to log usage on the cell phone that is issued to them by the IRS?
    Not to mention crackberries.
    I know for a fact that where I work (not the IRS) the govt. issued cell phone usage is not logged.

  20. I still have one of those old Motorola bricks on the shelf in my office reserved for a kind of technology museum. But it was really cool back in the day.

  21. Chad,
    Why do we need to make up the budget deficit by increasing tax revenues? Wouldn’t it be better for us if the government simply spent LESS of OUR money?

  22. Before we come down too hard on the IRS, this is actually Congress’ fault. The requirement to maintain a log of cell phone usage is in the Internal Revenue Code; it’s not something that’s been added by regulation or revenue procedure. There was some debate about whether or not the IRS should enforce this requirement, but it was determined the IRS lacked the authority to simply ignore the law. Which is a good thing. The requirement may no longer make sense (if it ever did), but until Congress changes the law, it should be followed.

  23. My blog post on this subject might be interesting.

    Undocumented Employee Benefit – Great Moments in Government: The Birth of a New Tax Policy

  24. Maybe Congress can take time out from renaming post offices to change this?

    Nah, they’re on vacation for weeks.

  25. Hilarious picture. Somehow highlights Michael Douglas’ annoying arrogance.

  26. Big businesses can have hundreds of employees surfing the net or making personal calls on company cell phones and not have to keep logs, while at the same time the IRS is conducting detailed audits of a small business’ usage logs.

    I suspect big businesses use cellphone plans that generate the required records automatically, and in such volume that regulators don’t have the resources to examine them.

  27. They should appeal to Tax Court. The IRS has done this stunt in the past (reinterpret a rule or resurrect an old one no longer applicable) and in nearly every case it’s been found by the Court that the IRS was, in essence, creating new tax law–something only Congress can do.

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