Provided by: Evangelical Council for Financial Accountability
440 West Jubal Early Drive, Suite 130 Winchester, VA 22601
540-535-0103 800-323-9473 Fax: 540-535-0533
www.ECFA.org Email: info@ECFA.org
Cellular Phone Usage
Ministry employees often use a cell phone to accomplish ministry business. The cell
phone used may be a personally-owned phone or a phone owned by the ministry. The
tax rules relating to cell phones are complex. It is important to understand the tax rules
for cell phones applicable to both employers and employees.
Cell phone owned by an employee—cost of the phone. Cell phones an employee
owns and uses more than 50% for ministry purposes may be depreciated (or reimbursed)
as five-year recovery property or deducted under Section 179 of the Internal Revenue
Code up to the annual limit on a joint return. The business portion of depreciation may be
reimbursed under an accountable expense reimbursement plan, if the 50% business and
the ―convenience of the employer‖ and ―condition of employment‖ tests are met:
Convenience of the employer. The ―convenience of the employer‖ test will
generally be met if use of the cell phone is for a substantial business reason of the
employer. Use of the cell phone during regular working hours to carry on ministry
business is generally considered for the convenience of the ministry employer.
Condition of employment. The ―condition of employment‖ test means that the
ministry employee cannot properly perform his or her duties without the cell phone.
Whether the employee can properly perform his or her duties without it depends
on all the facts and circumstances. It is not necessary that the employer explicitly
require the ministry employee to use his or her cell phone, but it is not sufficient for
the employer to merely state that the use of the cell phone is a condition of
If the employee meets both the ―convenience of the employer‖ and ―condition of employ-
ment‖ tests but did not use their cell phone more than 50% of the time for their work, the
employee must depreciate it using the straight-line method.
Cell phone user fees—employer owns the phone. Use of a cell phone owned by the
employer is fully taxable under a nonaccountable plan; e.g., the employer requires no
substantiation of the business use. Under a nonaccountable plan, the employer is
required to report the monthly user fees as taxable compensation to the employee.
Cellular Phone Usage
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If the employer requires the employee to adequately document (see ―recordkeeping
requirements‖ below) the business versus personal use of the cell phone, the payment of
the business portion of the expense is a business (ministry) expense and is tax-free to
the employee. Any personal portion of the user fees paid by the employer represents
taxable income to the employee.
Cell phone user fees—employee owns the phone. Payments to an employee (or on
behalf of an employee) by the employer for cell phone user fees for a cell phone owned
by the employee is fully taxable under a nonaccountable plan; e.g., the employer requires
no substantiation of the business use. Payments are also nonaccountable if the
―convenience of employer‖ or ―condition of employment‖ tests (see above) are not met.
Under a nonaccountable plan, the employer is required to report any payment of monthly
user fees as taxable compensation to the employee (or if the reimbursement of an
employee-owned cell phone is in excess of the substantiated business use).
Employees may be reimbursed (or deduct as unreimbursed business expenses on
Schedule A) the business-related cell phone call charges and the business-related
portion of the monthly fees if the business usage of the phone exceeds 50% and the
―condition of employment‖ and ―convenience of employer‖ tests are met.
Recordkeeping requirements. Cell phones are considered ―listed Property‖ under
Section 280F(d)(A)(v) of the Internal Revenue Code (IRC). The ―adequate records‖
requirement of the IRC applies to cell phones whether they are owned by the church or
To meet the adequate records requirement, an employee must maintain an account
book, diary, log, statement of expense, or similar record or other documentary evidence .
Telephone provider bills do not show the business purpose of calls, so this information
must be provided by the user.
In one case, the taxpayers paid a flat fee for their cellular phones as long as phone usage
was within a certain limit per month and used the phones for both personal and business
calls. The taxpayers did not incur any expenses to use their cellular phones for business
purposes in addition to those they would have incurred had they used their cellular
phones only for personal reasons. The IRS did not permit the taxpayers to approximate
cell phone expenses attributable to business use under Section 274(d) and disallowed
any deduction of cellular phone expense. 1
T.C. Summary Opinion 2007-49, Soholt v. Commissioner
This text is provided with the understanding that ECFA is not rendering legal, accounting, or other
professional advice or service. Professional advice on specific issues should be sought from an
accountant, lawyer, or other professional.
Cellular Phone Usage
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In Notice 2009-46 the IRS proposed four following simplified methods for substantiating
business usage. The proposals would:
deem 100% of the usage as business usage if the employee can establish
(through adequate records) that he or she maintains and uses a personal cell
phone for all personal calls during work hours,
define a specified amount of minimal personal usage that would be disregarded in
determining the amount of personal usage, for example, based on a set number of
minutes or for certain types of personal calls,
provide a safe harbor substantiation method—for example 75%—as deemed
business usage, the remainder would be deemed personal usage and taxed to the
allow an employer to use statistical sampling to determine a proportion of business
versus personal usage.
On June 17, 2009, the IRS Commissioner stated that he would ―ask that Congress act to
make it clear that there will be no tax consequences to employers or employees for the
personal use of work-related devices such as cell phones provided by employers. The
passage of time, advances in technology, and the nature of communication in the modern
workplace have rendered this law obsolete.‖ It is unclear whether or when Congress will
act and whether they will remove both cell phones and personal computers as listed
property and subject to the same onerous documentation personal use rules.
The IRS is trying to find a way to reduce the administrative burden on employers and
employees for documentation of cell phone usage. However, the IRS is required to
enforce the law as written, and it is Congress that has the power to change the law.
Employers and employees should consider that current documentation processes and
the possible impacts of future safe harbor methods of determining personal usage.
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Sample Employer-Provided Cell Phone Agreement
The business portion of cell phone costs (either organization-provided or employee-provided
cell phones) will be paid by the organization only if the ―convenience of the employer‖ and
―condition of em ploym ent‖ tests are met and the employee uses the cell phone m ore than
50% of the tim e for organization-related work.
Your cell phone is intended prim arily for business use. You m ay use the phone for personal
calls; however, you will be required to reim burse any additional costs for personal calls
according to the policies in this agreem ent.
You are never required to use your cell phone while driving. If you receive a call while
driving, do not answer. Look for a safe place to pull off the road, then check your voicemail
and return the call if necessary.
Reimburse ment of Personal Use
You are required to review your cell phone bill each month and reimburse the organization
for the allocated cost of all personal calls (this includes an allocation of base airtime) .
There is an exception to the policy of reimbursem ent if your personal cell phone usage has
been approved by our organization as additional compensation. In this instance, the cell
phone personal use cost (based on your identification of personal calls – see previous
paragraph) will be added to your Form W-2 as additional com pensation.
Your phone and its accessories are provided by the ministry. It is your responsibility to keep
your phone in good working order and readily available. The organization may or may not
choose to carry equipment insurance on your phone. The phone and its accessories must be
returned to the organization at termination of your m obile phone contract or termination of
I understand and agree to abide by these cell phone policies.
Employee Sign/Date Supervisor Sign/Date