Taxpayer Still Must Provide Some Evidence Related to Business Use of Cell Phone

Beginning in 2010 cellular telephones were no longer considered “listed property” subject to the strict substantiation rules of IRC §274(d).  But, as was noted, in the case of Archuleta v. Commissioner, TC Summary Opinion 2018-55, that doesn’t mean that a taxpayer should not have documentation of the expense and what portion related to business use.

Before cell phones were removed from listed property, IRC §274(d) provided a taxpayer would be denied a deduction for any cell phone expense:

...unless the taxpayer substantiates by adequate records or by sufficient evidence corroborating the taxpayer's own statement (A) the amount of such expense or other item, (B) the time and place of the travel, entertainment, amusement, recreation, or use of the facility or property, or the date and description of the gift, (C) the business purpose of the expense or other item, and (D) the business relationship to the taxpayer of persons entertained, using the facility or property, or receiving the gift.

After 2009 that rule no longer applied to cell phones--but that doesn’t mean that taxpayers can simply claim the entirety of a cell phone bill.

In the case in question the taxpayer was attempting to claim an AT&T cell phone bill as employee business expense.  But the Court found it had not reasonable method to separate the personal from the business use of the amounts paid to the carrier.

As the Court explained:

The cell phone plan consisted of three phone lines, including a line for each of petitioner, Mrs. Archuleta, and their son. Petitioners failed to provide cell phone records evidencing payment. Moreover, petitioners have not provided any evidence that would allow us to distinguish between charges for business and personal use; thus, the Court is unable to estimate a deductible amount. See Cohan v. Commissioner, 39 F.2d 540, 543-544 (2d Cir. 1930); see also Vanicek v. Commissioner, 85 T.C. 731, 742-743 (1985).4 Accordingly, petitioners are not entitled to a deduction for cell phone expenses, and respondent's disallowance of that deduction is also sustained.

So while a Cohen defense of the deduction is no longer barred, as the opinion noted, there has to exist a reasonable basis to estimate an expense before the Cohen decision can be used to assist a taxpayer who does not have the best of (or any) records.