Tax Lawyers Minneapolis

IRS Issues Guidance on Tax Treatment of Cell Phones

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On September 14, 2011, the Internal Revenue Service issued guidance designed to clarify the tax treatment of employer-provided cell phones.

The guidance relates to Section 2043 of the Small Business Jobs Act of 2010, Pub.L.No. 111-240 (enacted last fall) that removed cell phones from the definition of listed property, a category under tax law that normally requires additional recordkeeping by taxpayers.

Generally, a fringe benefit provided by an employer to an employee is presumed to be income to the employee unless it is specifically excluded from gross income by another section of the Code. (See Income Tax Regulations § 1.61-21(a)).

Pursuant to Notice 2011-72, the employer- provided cell phones are treated as an excludible fringe benefit. The Notice further provides that when an employer provides an employee with a cell phone primarily for noncompensatory business reasons, the business and personal use of the cell phone is generally nontaxable to the employee. The IRS will not require recordkeeping of business use in order to receive this tax-free treatment.

Simultaneously with the Notice, the IRS announced in a memo to its examiners a similar administrative approach that applies with respect to arrangements common to small businesses that provide cash allowances and reimbursements for work-related use of personally-owned cell phones. Under this approach, employers that require employees, primarily for noncompensatory business reasons, to use their personal cell phones for business purposes may treat reimbursements of the employees’ expenses for reasonable cell phone coverage as nontaxable. This treatment does not apply to reimbursements of unusual or excessive expenses or to reimbursements made as a substitute for a portion of the employee’s regular wages.

Under the guidance issued today, where employers provide cell phones to their employees or where employers reimburse employees for business use of their personal cell phones, tax-free treatment is available without burdensome recordkeeping requirements. The guidance does not apply to the provision of cell phones or reimbursement for cell-phone use that is not primarily business related, as such arrangements are generally taxable.

Contact Sherayzen Law Office NOW for Legal Help Regarding Your Business Tax Issues!

If you have any questions or concerns regarding this or any other business tax issues, contact Sherayzen Law Office. Our experienced tax firm will guide you through the complex issues of business taxation, help you deal with current business transactions, as well as create a comprehensive business tax plan that allows you to take advantage of the existing Tax Code’s provision and engage in proactive tax planning.

Eligibility for Voluntary Classification Settlement Program

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As discussed in an earlier article, I already explained the essence of a new Voluntary Classification Settlement Program (“VCSP”) announced by the IRS earlier this week. I then explored the application process. In this essay, I would like to explore the general eligibility requirements for the VCSP.

Generally, the VCSP is available for to many businesses, tax-exempt organizations and government entities that currently erroneously treat their workers or a class or group of workers as nonemployees or independent contractors, and now want to correctly treat these workers as employees.

In order to be eligible for the VCSP, a taxpayer must meet three requirements.

First, the applicant must have consistently treated its workers in the past as nonemployees.

Second, the applicant must have filed all required Forms 1099 for the workers for the previous three years.

Finally, the third requirement is that the applicant cannot currently be under audit by the IRS, the Department of Labor, or any other state agency concerning the classification of these workers. Note that a taxpayer who was previously audited by the IRS or the Department of Labor concerning the classification of the workers will only be eligible if the taxpayer has complied with the results of that audit.

Contact Sherayzen Law Office NOW to Obtain VCSP Representation

If you wish to participate in the VCSP, you should contact Sherayzen Law Office immediately. Our experienced tax firm will rigorously represent your interests during the entire process of the Voluntary Classification Settlement Program and strive to achieve the most satisfactory and efficient resolution of your case.

Voluntary Classification Settlement Program

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On September 21, 2011, the IRS announced and explained its new Voluntary Classification Settlement Program (VCSP) that provides partial relief from federal employment taxes for eligible taxpayers that agree to prospectively treat their workers as employees (see Announcement 2011-64). In essence, eligible employers may voluntary elect to participate in the VCSP in order to limit federal employment tax liability for the past non-employee treatment of workers who should have been classified as employees.

In order to participate in the program, the taxpayer must meet certain eligibility requirements, apply to participate in VCSP, and enter into a closing agreement with the IRS.

Background Information

Whether a worker is performing services as an employee or as an independent contractor depends upon the facts and circumstances and is generally determined under the common law test of whether the service recipient has the right to direct and control the worker as to how to perform the services. In some factual situations, the determination of the proper worker classification status under the common law may not be clear.

For taxpayers already under the IRS examination, the current CSP may be available to resolve federal employment tax issues related to worker misclassification, if certain criteria are met. The examination CSP permits the prospective reclassification of workers as employees, with reduced federal employment tax liabilities for past nonemployee treatment. The CSP allows business and tax examiners to resolve the worker classification issues as early in the administrative process as possible, thereby reducing taxpayer burden and providing efficiencies for both the taxpayer and the government.

In order to facilitate voluntary resolution of worker classification issues and achieve the resulting benefits of increased tax compliance and certainty for taxpayers, workers and the government, the IRS has determined that it would be beneficial to provide taxpayers with a program that allows for voluntary reclassification of workers as employees outside of the examination context and without the need to go through normal administrative correction procedures applicable to employment taxes.

Effect of VCSP

A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for the future tax periods. Additionally, a taxpayer participating in the VCSP will agree to extend the period of limitations on assessment of employment taxes for three years for the first, second and third calendar years beginning after the date on which the taxpayer has agreed under the VCSP closing agreement to begin treating the workers as employees.

In exchange, the taxpayer will pay ten (10) percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year, determined under the reduced rates of section 3509 of the Internal Revenue Code. Moreover, the taxpayer will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

Contact Sherayzen Law Office NOW to Resolve Your Employment Tax Issues

If you wish to find out whether you are eligible to participate in the VCSP and whether this is the best option for you, you should contact Sherayzen Law Office immediately. Our experienced tax attorneys will guide you through the complex process of Voluntary Classification Settlement Program and strive to achieve the most satisfactory and efficient resolution of your case.

Estimated Tax Payments are due on September 15, 2011

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Estimated tax payments for the third-quarter (June 1-August 31) of 2011 are due on September 15, 2010. The estimated tax payments should be made using Form 1040-ES. Note, if the due date for an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be considered on time if it is made on the next business day.

One-Week Filing Extension to Taxpayers Whose Preparers Were Affected by Hurricane Irene

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On September 1, 2011, the Internal Revenue Service announced that it is granting taxpayers whose preparers were affected by Hurricane Irene until September 22, 2011 to file returns normally due September 15.  The taxpayer’s preparer must be located in an area that was under an evacuation order or a severe weather warning because of Hurricane Irene, even if the preparer is located outside of the federally declared disaster areas.

This relief, which primarily applies to corporations, partnerships and trusts that previously obtained a tax filing extension, is available to taxpayers regardless of their location.

It is important to note that this relief does not apply to any tax payment requirements.