On Friday (Sept. 2, 2011), the IRS released the 2011-2012 Priority Guidance Plan (PGP). 37 items in the PGP relate to retirement plans, and 29 items relate to Executive Compensation, Health Care and Other Benefits, and Employment Taxes. More about these items later this week.
One item on the list that caught my eye is number 7 in the section on Executive Compensation, Health Care and Other Benefits, and Employment Taxes. It says:
7. Notice on the applicability of §§132(d) and (e) to employer-provided cell phones following enactment of §043 of the Small Business Jobs Act of 2010.
Since at least 2005, there have been rumors that the IRS was looking at a number of employer-provided fringe benefits, such as cell phones and points for frequent flyer miles, to see whether they should be included in the definition of compensation. With employer provided cell phones typically averaging a benefit worth at least $1,200 per year ($100 per month) and disproportionately provided to Highly Compensated Employees (HCEs) and key employees compared to rank-and-file or non-highly compensated employees, it was just a matter to time before the IRS issued guidance. Apparently, the catalyst to move employer provided cell phone fringe benefits onto the 2011-2012 Priority Guidance Plan was section 2043 the Small Business Jobs Act of 2010.
Almost a year ago (Sept. 27, 2010), President Obama signed the Small Business Jobs Act of 2010 into law. Section 2043 said:
SEC. 2043. REMOVAL OF CELLULAR TELEPHONES AND SIMILAR TELECOMMUNICATIONS EQUIPMENT FROM LISTED PROPERTY.
(a) IN GENERAL.—Subparagraph (A) of section 280F(d)(4) of the Internal Revenue Code of 1986 (defining listed property) is amended by adding ‘‘ ‘and’ ’’ at the end of clause (iv), by striking clause (v), and by redesignating clause (vi) as clause (v).
(b) EFFECTIVE DATE.—The amendment made by this section shall apply to taxable years beginning after December 31, 2009.
While the language of section 2043 did not immediately trigger thoughts of 415(c)(3), 414(s) or 3041 compensation for me, it did for someone at the IRS. Take the language of section 2043, combine it with Internal Revenue Code sections 132(d) and 132(e), and it may have plan implications.
If you do not have a copy of your Code handy, Internal Revenue Code section 132(d) defines Working Condition Fringe as:
“For purposes of this section, the term “working condition fringe” means any property or services provided to an employee of the employer to the extent that, if the employee paid for such property or services, such payment would be allowable as a deduction under section 162 or 167.”
Internal Revenue Code section 132(e)(1) defines De minimis Fringe as:
“The term “de minimis fringe” means any property or service the value of which is (after taking into account the frequency with which similar fringes are provided by the employer to the employer’s employees) so small as to make accounting for it unreasonable or administratively impracticable.”
It will be interesting to see how this plays out in guidance over the next year.