The IRS has clarified the tax treatment of employer-provided cell phones. If an employer provides an employee with a cell phone primarily for noncompensatory business reasons, neither the value of the business use nor the value of the personal use of the phone is taxable to the employee. An employer will meet the standard of "noncompensatory business reasons" if the employer has substantial reasons relating to its business, other than providing compensation to the employee, for providing the employee with a cell phone.
This rule applies retroactively to any use of an employer-provided cell phone occurring after December 31, 2009.
See IRS Notice 2011-72.