Refunds Available for Excise Tax Paid on Long-Distance Service

 

To All of our Clients:

The IRS has conceded defeat in a long battle with federal and district courts over the imposition and collection of federal excise taxes on your long-distance telephone service. This decision impacts nearly every taxpayer that pays for long-distance telephone service for their home or business. The decision (1) directs collectors of the tax to stop collecting the tax, and (2) allows taxpayers to file claims for a refund or credit of any amount of excise tax that was billed and paid after February 28, 2003 and before August 1, 2006. Refunds allowed under this decision will include interest.

The rules regarding the filing of such claims require that the claim be made on your 2006 tax return, which for most taxpayers is not due to be filed until 2007. However, the claims must be documented with records and receipts of amounts paid, so that it is not too early to think about gathering such records in anticipation of claiming a refund or credit for this tax on your 2006 return. Individual taxpayers will not be required to furnish such proof of excise tax paid if they choose to claim a “safe harbor” amount as directed by IRS. For most individuals unless you have extraordinary circumstances, the safe harbor amount will probably be the most cost effective method of taking this credit.

A short-cut computation method is allowed for businesses.  For most businesses this will also be the most cost effective method.  However, businesses that have very large telephone expenses may want to gather the actual data for a three year period.

The information needed for the business computations is as follows:

  1. Total federal long distance excise tax paid each month from March, 2003, through July, 2006.
  2. Total employees on Form 941 for June 30, 2006.
  3. April, 2006, telephone bills
    1. Total bill
    2. Telephone excise tax on bill
  4. September, 2006, telephone bills
    1. Total bill
    2. Telephone excise tax on bill

We have an Excel spreadsheet that will help you accumulate all the items listed above. If you would like a copy, please contact us.

Please call us at your earliest opportunity if you have questions about this development, or about how it may impact your 2006 tax liability.

 

CF & Co., LLP

Posted: January, 2007