Dial Zero
A look at what's surprising, silly, scary or stupid in telecommunications and data

Wednesday, September 02, 2009

Have you been cheating the IRS when you use your company cellphone?

Under a 1989 law, workers who use company-provided mobile phones for personal calls are supposed to count the value of those calls as income and pay federal income taxes accordingly.

But businesses and workers have long ignored the requirement, prompting IRS to ask Congress to repeal the law.

Wireless trade association CTIA supports legislation to do away with a 20-year-old law. While waiting for Congress to act, CTIA said the IRS should "consider suspending all audit activity on the taxation of the personal use of employer-provided cellphones."

"The alternatives [to legislation] proposed by the IRS are either incomplete or inadequate solutions that would continue to subject employees and employers to onerous call log requirements," CTIA President Steve Largent said. CTIA members include the country's largest wireless companies -- Verizon, AT&T, Sprint Nextel, and T-Mobile.

The IRS is collecting comments on the cellphone-tax law. In June, IRS Commissioner Doug Shulman asked Congress to repeal it, calling it "obsolete." Shulman's statement signaled a quick turnabout for the IRS, which had earlier proposed that employers assign 25% of an employee's annual phone expenses as a taxable benefit. Under that scenario, a worker in the 28% tax bracket, whose wireless device costs the company $1,500 a year, could see $105 in additional federal income tax.

Without congressional action, the IRS had hoped to clarify the rule so it would be easier for businesses and workers to comply.

Sens. John Kerry and John Ensign and Reps. Sam Johnson and Earl Pomeroy have sponsored a bill with broad bipartisan support that would remove cellphones from the IRS's list of taxable properties provided to workers by their employers.

Most businesses and tax executives prefer a repeal.

U.S. colleges and universities, nonprofits and other employers are also calling for legislation to remove employer-provided cellphones from the list of taxable fringe benefits. Short of legislation repealing the cellphone requirements, the National Association of College and University Business Officers said it favors assigning a maximum number of minutes per month allowable for personal use, that wouldn't be counted for tax purposes.

The Tax Executives Institute, a trade group for company tax directors, asked IRS to suspend enforcement of its cellphone rules until Congress acts.

A California court said it loses about 45 employee hours each month -- from 160 employees that are provided cellphones by the court -- in an effort to track personal calls to comply with IRS requirements. That effort generally results in employees reimbursing the court for a total of about 125 minutes a month for personal cellphone use, wrote David H. Yamasaki, chief executive officer of the Santa Clara County Superior Court.

Of course, employees have been making personal calls with landline phones owned by their employers for scores of years without paying taxes on the value of the calls.

And they don't pay taxes on the value of personal use of business computers.

(info from The Wall Street Journal)

Tuesday, September 01, 2009

Amazon starts to bail out of Skype

EBay is selling a majority interest of the Internet telecom service Skype for about $2 billion, reversing a 2005 acquisition that many considered a bad deal at its inception.

EBay is selling a 65 percent stake in Skype to a group of private investment funds for $1.9 billion in cash and a $125 million note, while retaining a 35 percent stake. EBay said the deal values the company at $2.75 billion.

EBay said earlier this year that it would spin off Skype, which lets people make free or inexpensive voice and video calls with computers and cellphones, after struggling to justify its 2005 acquisition of the company for $2.6 billion.

EBay hoped the service would catch on with users of its auction site, but it never became a popular way for buyers and sellers to connect. The company took a $900 million write-down on Skype in 2007, tacitly acknowledging it had overvalued the business.

Still, Skype itself remains popular, particularly among people who regularly make international calls. According to the research group TeleGeography, Skype accounted for 8 percent of international calling traffic last year. The service can typically offer cheaper rates than regular phones by sending voice as data over the Internet just like e-mail and Web pages, reducing the need to tie up dedicated phone lines.

It is also starting to look like a more profitable business, with revenue up 25 percent to $170 million in the most recent quarter.

Skype was founded by Niklas Zennstrom and Janus Friis, creators of the music downloading service Kazaa, which had upset the recording industry.

EBay announced in April that it would spin off Skype through an initial public offering next year, though the company said it was open to alternative bids that offered attractive valuation. In a statement Tuesday, eBay CEO John Donahoe said the deal with the investor group achieves that...Skype, as a standalone company, would have the focus needed to compete and "accelerate its growth momentum"

The group of investors buying the stake includes Andreessen Horowitz, the new $300 million fund set up by Web browser pioneer Marc Andreessen. Led by the private equity firm Silver Lake, the group also includes Index Ventures and the Canada Pension Plan Investment Board. (info from The Associated Press)