Volume A3, Issue 2007

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.

Individual Standard Amount

This is probably the easiest method of the refund and is fairly comparable to the amount you would receive if you figured your actual Federal Excise Tax, without all of the hassle of searching through years of phone bills to find amounts.

Here is how it works... Individual taxpayers qualify for a standard credit between $30 and $60 based on the number of exemptions they are eligible to claim on their 2006 tax return. For those who can claim:

• one Exemption, the standard refundable credit is $30;

• two Exemptions, the standard refundable credit is $40;

• three Exemptions, the standard refundable credit is $50; and,

• four Exemptions or more, the standard refundable credit is $60.

Estimate Formula

Businesses or individuals with Schedules C, E, and/or F with a gross income totaling more than $25,000 can use the estimated Telephone Excise Tax Refund method. Below is a form that will help you gather the information we will need in order to calculate the estimated amount. In most cases the total amount of the refundable credit will be less that one-third of one months total phone bill.

Actual Amounts

You can compute the actual tax paid. To use this method you will need to locate the bill for each of the 41 months the refund covers (services after February 28, 2003 and before August 1, 2006). The locate the actual amount of the Federal Excise Tax charged for long distance or bundled services on each bill. The sum of these amounts is your credit. We are not recommending this method for taxpayers with less than a $10,000 average monthly phone bill.

Which Method Works For You

Below is a chart that shows options available to each type of entity.