Background. This is the third in a series of three articles addressing the use of cell phones by church staff. The first article in this series appeared in the July 2000 issue of Church Treasurer Alert. It addressed two important limitations that are imposed by the tax code on the business use of cell phones by employees: (1) the phone must be for the "convenience of the employer," and (2) the phone must be a "condition of employment." The second article appeared in the September 2000 issue of this newsletter, and addressed substantiation requirements and the use of cell phones by self-employed workers. This article addresses a few additional issues.
Which employees get cell phones? Which church employees should be provided with a cell phone by the church? Every pastoral staff member? Secretaries? Custodians? Bookkeepers? The best approach from a tax perspective would be to provide cell phones only to employees who meet the "convenience of the employer" and "condition of employment" requirements discussed in the first article in this series (see the July 2000 newsletter). After all, if these tests are not met, then an employee will not be able to treat the use of the phone as a business expense and the church cannot reimburse any use of the phone under an accountable expense reimbursement arrangement.
Cell phone "sharing." Some churches provide one cell phone for use by more than one staff member. Such an arrangement creates significant complexity. Consider the following: (1) If the church has an accountable business expense reimbursement arrangement, then it will need to have staff members who use the phone substantiate the business nature of every "business" call on each monthly phone bill. (2) The church then can determine the "business use percentage" (the percentage of total phone time that consists of business calls). (3) The business use percentage, multiplied times the monthly phone bill, represents the amount deemed substantiated under an accountable arrangement, meaning that this amount does not represent taxable income. (4) The remaining or "personal" component of each monthly bill represents taxable income that must be allocated to the users of the phone. This is not an easy task. Church treasurers can simply apply the taxable personal use equally to each user, or try and allocate the personal use on the basis of actual personal use.
Pagers. Consider providing pagers instead of cell phones to some church staffers. Pagers are much cheaper to purchase and operate, and nonbusiness use is minimized because they can only receive communications, messages last only for a few seconds, and rarely does one receive more than a few pages each day. After all, how many persons repeatedly try to communicate with others through pages? It should be expected that church staff who are provided with pagers will occasionally receive "personal" pages, but in most cases these will be so infrequent and of such short duration that they will constitute a nontaxable "de minimis" fringe benefit and so will not represent taxable income. A "de minimis" fringe benefit is a fringe benefit that is so minimal in value that it would be unreasonable or administratively impractical to account for it. The income tax regulations give several examples of de minimis fringe benefits, including occasional personal use of the church duplicating machine. There is no doubt that occasional receipt of personal pages would be meet this test. Note that this is much different than personal use of cell phones which can occupy several hours each month. There is one additional advantage of providing pagers to church staff. In many cases personal use will be so limited that exclusive business use can be assumed. This means that the church's payment of the purchase price of the pager, and its payment of monthly user fees, can be treated as "accountable" reimbursements that will be reportable as taxable income to the staff member who uses the pager. This is especially true if a very limited number of persons outside the church office know the pager number (the employee's spouse and children). Further, unlike cell phones, the relatively low cost of using pagers (a few dollars each month) all but eliminates any audit risk, especially since infrequent personal use in most cases would be treated as a nontaxable "de minimis" fringe benefit.
What cell phone plan is best? Church leaders should carefully evaluate available cell phone plans before making phones available to church staff members. The selection of an appropriate plan should take into account several factors, including the following:
(1) Does the employee need long distance service? If an employee rarely travels out of state on church business, why would the church want to provide him or her with a "national" plan at a much higher cost than purely local coverage?
(2) Minutes of use. How many minutes of use should be provided? Consider the employee's activities. Does the employee's position require him or her to be away from the church office frequently? Does the employee's position require that he or she be accessible at all times? Does the employee's position require frequent telephone calls?
(3) Frequent evaluation. Monitor cell phone bills regularly. Employees who rarely use up their monthly "total minutes," or who use a significant portion of their total minutes in the last few days of the month, probably have the wrong usage plan. Move to a plan with a lower number of minutes.
Tip. Some cell phone companies are allowing users to have two lines on the same phone. One line can be used exclusively for business calls, and the second line can be used for personal calls. Such an arrangement can make the substantiation of the business use of a cell phone much simpler. The church staff member pays the bills associated with the second (or "personal") line.
Handling excess "talk time." Churches should consider how to handle charges incurred because of "talk time" in excess of the minutes available under the cell phone usage plan paid for by the church. For example, if the senior pastor is provided with a cell phone that has 500 minutes of monthly "talk time" available, and the pastor incurs an additional $300 in charges for a month because of "talk time" in excess of 500 minutes, will the church reimburse this additional cost so long as the pastor can substantiate business use? That is a question that church leaders must resolve. There are two options:
(1) Cap the church's reimbursements. If the monthly talk time limit is adequate, then church leaders may want to "cap" the church's reimbursements at the monthly rate, and inform the staff member that all charges incurred because of talk time in excess of the monthly usage limit will be reported as taxable income.
(2) Reimburse business use. Church leaders can agree to reimburse all business calls that are properly substantiated, including those in excess of the monthly usage limit available under the cell phone plan purchased by the church.
A cell phone policy. Consider the adoption of a cell phone policy incorporating many of the points made in the three articles in this series. For example, the policy could address the following points:
(1) the criteria for determining who gets a cell phone
(2) the substantiation that will be required if the church maintains an accountable expense reimbursement arrangement, and the tax consequences associated with a failure by an employee to adequately substantiate business use
(3) an explanation of how many minutes of monthly cell phone "talk time" each employee will have, and a description of how excess charges will be handled
(4) a reminder that cell phones are provided for and paid by the church, and therefore cell phones should not be used for any personal use except emergencies
(5) a prohibition of any use of cell phones while driving a vehicle on church business (an exception may be made in the case of emergencies if the phone is used in the "hands free" mode, but such an exception will increase the risk of accidents and liability)
(6) a prohibition of any use of a cell phone by anyone while driving minors or adults to or from a church function or activity in either their own vehicle or a church-owned vehicle (would parents want their youth pastor talking to his girl friend on a cell phone while driving children to a church activity in a church van?)
(7) a warning of the potential adverse health consequences of prolonged use of cell phones
(8) a requirement that cell phones be turned off while refueling a car (operating a cell phone while refueling is a safety hazard)
(9) a requirement that employees report lost cell phones to the church treasurer immediately so that the cell phone company can be contacted and service to the lost phone disconnected
Traffic risks. A vast and growing number of Americans have cell phones, and frequently use them when they drive. It is now common to see drivers driving recklessly while talking on a cell phone. But is driving while talking on a cell phone really more dangerous? Yes it is, according to a number of recent studies. Consider the following:
- A National Highway Traffic Safety Administration study estimates that 85% of cell phone owners use their phones while driving their car.
- Several countries have banned the use of cell phones while driving.
- Laws prohibiting the use of cell phones while driving have been introduced in nearly 40 states, but so far none has been enacted.
- The National Highway Traffic Safety Administration says that "driver inattention" is the cause of half of all traffic accidents.
- A car traveling at 50 miles per hour will cover 73 feet in one second—far less time than is normally involved in answering or dialing a cell phone.
- One recent study concluded that drivers who use their cell phones only one hour each month have a 5 times greater risk of being involved in an traffic accident than drivers who don't use their cell phones.
- A survey analyzing more than 200,000 car accidents in Oklahoma concluded that drivers with cell phones were much more likely to have been cited by police for inattention, unsafe speed, driving on the wrong side of the road, striking a fixed object, overturning a vehicle, swerving prior to the accident, and running off the road. In addition, drivers with cell phones were more likely to have been involved in fatal accidents.
- A study published in the February 1998 New England Journal of Medicine concluded that persons who drive while using a cell phone are 4 times more likely to be involved in an accident.
This evidence suggests a number of reasonable precautions, including the following:
(1) Drivers of children. It is certainly a good practice to have a cell phone available on any vehicle that is being used to transport minors to or from a church activity. A cell phone can be invaluable in the event of an emergency. However, the driver of the vehicle should be barred from using the cell phone while driving the vehicle. Calls can be answered or placed by another adult on the vehicle. This policy should apply to the use of any vehicle to transport minors, whether or not owned by the church.
(2) Drivers of adults. The same policy that applies to the use of cell phones while transporting minors should apply to the transportation of one or more adult passengers.
(3) Driving alone. The use of a cell phone by a church staff member while driving a car on church business should be discouraged, if not prohibited. If the phone has a "voice mail" feature, a missed call that must be returned a few minutes later when the driver reaches his or her destination ordinarily will not create a problem. Some churches may want to make this rule less restrictive by allowing use of cell phones while driving in the event of an emergency, and other churches will want to eliminate any restrictions on the use of cell phones by church staff members while driving. In such cases, churches at a minimum should require that the phone be used in "hands free" mode, and appropriate devices to permit such use should be provided. Any "less restrictive" policy should be applied only to church staff members while driving alone, and not to drivers of children or adults.
Health risks. The verdict is still out on the health effects of prolonged cell phone use. If future studies establish a conclusive link, then it is possible that employees who suffer health problems that are linked to cell phone use may be able to obtain workers compensation benefits from their employer. This is a relevant issue for churches, since many have not obtained workers compensation insurance. These churches would have to pay the full amount of the workers compensation benefits since they failed to obtain insurance and their general liability insurance policy provides no coverage for employment-related injuries.
The clergy privilege. Cell phone conversations are not confidential. It is easy for others to eavesdrop. This raises an important question concerning the application of the "clergy-penitent privilege" to conversations conducted over a cell phone. In all 50 states, the clergy privilege applies only to communications that are "confidential." Does this mean that conversations over a cell phone can never be privileged? No court has addressed this question. However, to eliminate any doubt, ministers may want to refrain from engaging in confidential spiritual counseling over a cell phone. Ministers who receive a call on a cell phone from a person seeking spiritual counsel should ask the caller to call back on a land line.