Special Alert: Treasury to Issue Long-Distance Telephone Excise Tax Refunds

The Internal Revenue Code currently imposes a 3% communications excise tax on amounts paid for local and long-distance services.  The IRS recently announced it will no longer collect the federal excise tax on long-distance telephone services.  This IRS announcement follows decisions in five federal circuit appeals courts holding that the tax does not apply to long-distance service as it is billed today.

Taxpayers will be eligible to claim refunds only on their 2006 income tax returns, to be filed in 2007, for all excise taxes paid on long-distance and wireless service billed to them after February 28, 2003 and before August 1, 2006.  Interest will be paid on these refunds.

The relief provided by the IRS extends to “bundled service,” which is local and long-distance service provided under a plan that does not separately state the charge for the local telephone service.  This announcement, however, does not affect either the federal excise tax imposed on local telephone service, or the various State and local taxes and fees paid for telephone services.

The IRS has issued a Notice providing guidance for business entities, partnerships, estates, and tax-exempt organizations to request credit or refund of excise taxes paid.  Taxpayers will be required to maintain records to substantiate their requests.

In order to minimize burden, the IRS expects to announce a simplified method that individuals may use to obtain this refund.  Under this method, individual taxpayers may request a safe harbor amount and will not be required to submit or retain records.  The IRS intends to announce this safe harbor dollar amount in subsequent guidance.

If you have any questions regarding this issue, please contact a member of the Tax or Litigation Practice Groups at Kohrman Jackson & Krantz P.L.L.

Tax Practice Group
Peggy S. Beistel, 216.736.7207 or psb@kjk.com
Kevin T. O’Connor, 216.736.7213 or kto@kjk.com

Litigation Practice Group
Brett S. Krantz, 216.736.7238 or bk@kjk.com