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TAX NEWS - april 2010

House votes to ease substantiation requirements for employer-provided cell phones

Just in time for the 2010 income tax filing deadline, the House of Representatives April 14 voted 399-9 to approve taxpayer assistance legislation that would ease the substantiation requirements related to cell phones and other communications equipment that employers provide to their employees.

The $421 million Taxpayer Assistance Act of 2010 also contains a number of taxpayer protections and is offset with various penalty increases that were proposed in President Barack Obama's FY2011 budget.

It is unclear when or if the Senate plans to take action on the bill.


Treatment of employer-provided cell phones

Under current law, cell phones are "listed property" for which business deductions are limited or disallowed unless the taxpayer substantiates the expense and business use and purpose. If the listed property is not used predominantly for business purposes (or if not properly substantiated), annual depreciation deductions (and any small business expensing deduction) are limited.

To relieve the substantiation burden on employers, employees, and the IRS, the bill would de-list cell phones (or other similar telecommunications equipment), effectively removing the requirement of strict substantiation of use and the limitation on depreciation deductions. The provision would be effective for tax years beginning after December 31, 2009, and would cost an estimated $411 million over 10 years, according to the Joint Committee on Taxation (JCT) staff.


Increased reporting penalties

On the revenue side, the bill is offset primarily by an Obama budget proposal that would increase the penalties for failing to file correct information returns, failing to furnish correct payee statements, and failing to comply with other information reporting requirements. Joint Committee on Taxation (JCT) estimates that this provision would raise $419 million over 10 years.

The bill also would clarify that the penalty applicable to bad checks or money orders extends to all commercially acceptable instruments of payment, including electronic payments (Joint Committee on Taxation 10-year revenue estimate: $47 million).


Taxpayer assistance and protection

The bill also includes a number of taxpayer assistance and protection provisions that would, among other things:

- Require the IRS to pay interest on refunds related to individual income tax returns that are filed electronically if the refund is not paid within 30 days of the later of the return due date or the date the return is filed;
- Require the Secretary of Treasury to conduct a study on the effectiveness of collection alternatives;
- Require the Secretary of Treasury to conduct a study on more timely processing and use of information returns;
- Repeal the partial payment requirement on submissions of offers-in-compromise agreements;
- Require the IRS to notify taxpayers when it suspects that their identities, or their dependents' identities, have been stolen; and
- Allow the IRS to use mass communication, including the internet and its Web site, to notify taxpayers of undelivered refunds.

Joint Committee on Taxation (JCT) staff estimates that repealing the partial payment requirement on offers in compromise would cost $10 million over 10 years. The remaining provisions have no revenue impact.
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