Policies for Business Cellular Phones

1. Policies for Business Cellular Phones Leslie Youngberg: LYoungberg1@weber.edu Barbara LeDuc: BLeDuc@weber.edu Allison Knowlton: AllisonKnowlton@weber.edu

2. Introduction • Who? • What? • Why? Weber State University

3. Outline • IRS Ruling • Forming a Policy • Pros and Cons • Process • Stipends • Tax Issues • Lessons Learned • Resources

4. IRS Audit Techniques Guide The IRS is stepping up its enforcement activities. There is evidence the IRS is aggressively auditing the fringe benefits area. A brief discussion of cellular phones can be found under the “Employee Use of Listed Property” heading on page 6 of the “Internal Revenue Services Fringe Benefits Audit Techniques Guide” found on your CD. Internal Revenue Service Fringe Benefits Audit Techniques Guide: http://www.irs.gov/businesses/corporations/article/0,,id=134943,00.html

5. Fringe Benefits If the IRS were to come and audit University Departments offering cellular phones to employees and they find personnel are not reimbursing the department/university for personal calls, both incoming and outgoing, whether they have unlimited plans or not, the IRS can assess huge fines. Cellular phones are cited as fringe benefits. IRS requires that the business and personal use of University owned cell phones must be documented in a very detailed manner. The IRS can declare that all undocumented use is personal and should be taxed, even if the calls were mostly business calls. Receiving a taxable reimbursement for an individually owned cell phone removes this detailed documentation requirement.

6. Income Taxes/Fringe Benefits Unless otherwise provided by law, the value of a fringe benefit provided to an employee is included in that employee’s gross income. An exclusion is a “working condition fringe benefit”. That is 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 on their income taxes. • IRC Section 61 (a)(1), 132 (a) & (d) & Schedule A Tax Form 1040 Itemized Deductions

7. FICA and FUTA Taxes To the extent the value of a fringe benefit is included in gross income of an employee for income tax purposes, the value of the fringe benefit is also included in wages subject to FICA and FUTA taxes. The IRC law also states. To the extent the value of the fringe benefit is excluded in the gross income of an employee for income tax purposes, the value of the fringe benefit is also excluded from wages subject to FICA and FUTA taxes. • IRC sections 3121(a)(20), 3306(b)(16)

8. Listed Property and Substantiation Requirements Rigorous substantiation requirements are imposed. Substantiation requires employees to provide the business purpose of each expense, generally in writing. • IRC 280F(d)(4), Treas. Reg. Section 1.274-5T(b) Business use is excludable from wages of the employee as a working fringe benefit. Personal use is included in the wages of the employee. If substantiation requirements are not met, all use is included in the wages of the employee.

9. Examples of Listed Property • Passenger Automobiles • Other property used as means of transportation • Any computer or peripheral equipment • Cellular telephone or other similar telecommunications equipment • Internet Server Allowances • IRC Section 280F(d)(4)

10. What can the IRS do? • Impose fines • Require reimbursement • Make the University responsible to go through each bill; if the call is not documented, it will then be considered personal

11. Why Stipends? Supplemental pay is given to an employee on his/her paycheck to pay for business calls. This accommodates the IRS rules and regulations and alleviates documenting calls.

12. Results Just in Time…

13. Forming a Policy • Form a committee • Evaluate special consideration groups • Research other Universities • Work with Vendors • Evaluate Pros and Cons • Discuss stipend issues • Discuss tax issues

14. Forming a Committee • Members of the committee consisted of: • CIO • Internal Auditor • University Lawyer • Continuing Education Dean • Purchasing • Faculty Members • Facilities Management • Telecommunications • Campus Recreation

15. Special Consideration Groups • Police Department • Facilities Management • Athletics • Blackberry Users

16. Pros ofKeeping University Plan • Central Point of contact for all vendors • No signed contracts with vendors • Device and plan changes can be made within minutes • Knowledgeable contact for employees • Rate plan analysis for users

17. Pros of moving phones to Individual accounts • Fulfills IRS requirements • Personal calls allowed • No need to micromanage accounts • No overage costs for the University • More freedom for plan choices

18. Process • Supervisors determine whether an employee requires a cellular phone to perform their duties • Supervisors determine the level of service needed • Telecommunications representatives meet with departments to discuss their options • Telecommunications works with users to ensure that service plans and equipment are up-to-date and satisfactory

19. Process Cont. • Users fill out the “Employee Mobile Communication Agreement Form” • Supervisors submit PAR requests for stipends • Telecommunications works with cellular companies to release accounts to individual users • Users contact cellular companies to assume responsibility for their accounts

20. Process Cont. • PARs need to be renewed after a year • Employees will need to bring in their cellular bill once a year to prove that they have the service

21. Stipends • Who gets a stipend for a cellular phone? • What should the stipend amount be? • What are the limitations? • What kind of safeguards should be put in place? • What happens if work related calls exceed the stipend amount? • How will the employee receive the stipend?

22. Stipend Amounts Determining appropriate stipend amounts • Exact cost of plan • Five dollar increments • Ten dollar increments • Twenty dollar increments • Plan plus tax coverage

23. Tax Issues • How do we handle the taxes the employee will pay for the stipend? • Should the stipend be taxed as income? • Should the University give compensation to cover for the taxes on the stipend? • Should the individual accept the tax for the privilege of personal calls?

24. Lessons Learned • Transferring people off the account is not an easy process • It is not a cost-saving method initially • Cost controls • You can’t always rely on vendors • There will be resistance

25. Website Information • Weber State University’s Cellular Policy FAQ: http://departments.weber.edu/it/telecom/Cellular/FAQ_Cellular.htm • Weber State University’s Cellular Policy: http://documents.weber.edu/ppm/3-65.htm • Weber State University’s Cellular Agreement Form: http://weber.edu/ITDivision/Employee_Agreement.html • Weber State University’s Telecommunications Home Page: http://departments.weber.edu/it/telecom/ • Internal Revenue Service Fringe Benefits Audit Techniques Guide: http://www.irs.gov/businesses/corporations/article/0,,id=134943,00.html

26. Universities Who Have Made the Change • Indiana University: http://www.indiana.edu/~vpcfo/policies/accounting/i-480.html • Montana State University: http://www.montana.edu/wwwitc/telephoneservices/mobile.html • Portland State University: http://www.pdx.edu/bao/ • The University of Texas at Austin: http://www.utexas.edu/business/accounting/hbp/09_expend/expend2-9.html • University of Utah: http://www.it.utah.edu/services/phones/cellular.php • Weber State University: http://departments.weber.edu/it/telecom/

27. Questions Additional questions may be sent to: Leslie Youngberg – LYoungberg1@weber.edu Barbara Leduc – BLeduc@weber.edu Allison Knowlton – AllisonKnowlton@weber.edu