They heard loud and clear: The IRS recently announced a proposal to start collecting taxes on employees’ personal use of work-issued cell phones. After people complained, the agency had a change of heart.

As we reported last week, the IRS proposed a plan to start enforcing a 20-year-old law that classifies personal use of a business phone as a taxable benefit. In other words, employees are required to track their calls, text messages, and downloads, and pay taxes on the value of anything not work-related.

The law just hasn’t been enforced lately. It was passed when cell phones were a rare commodity. Once they were issued to everyone from mail room staff to CFOs, the IRS didn’t bother collecting the money.

That changed earlier this month, seemingly because the feds need the revenue. The agency proposed several methods for calculating the taxes owed and announced it would take public comments on the proposals until Sept. 4.

But it looks like they got enough already.

The plan generated an outcry of protest from businesses worried about having to track and report how their devices are used, as well as anyone with a work-issued phone who doesn’t want to pay more taxes.

In response, the agency reversed its position. In a statement released last week, IRS chairman Doug Shulman asked Congress to make it clear there will be no taxes owed by employees who use company-owned devices for personal reasons.

He said the purpose of the original proposal was not to “crack down” on collecting the taxes, but rather to simplify the rules. However, Shulman said in the statement, “the passage of time, advances in technology, and the nature of communication in the modern workplace have rendered this law obsolete,” and keeping it on the books will “inevitably leave widespread confusion among employees and businesses.”

Bills that would repeal the old law have been introduced into both houses of Congress this year. We’ll keep you posted.

Tags: cell phones, IRS, taxes