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Newsletter - Winter 2007
IRS to Stop Collecting Long-Distance Telephone Tax
Scott Freeman, Partner, Tax & Business Services |
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For decades, the Internal Revenue Service has collected federal excise tax on telephone services, including long-distance service. The current rate is 3 percent of charges billed. A series of recent federal appeals court decisions held that this tax on long-distance service does not apply as it is billed today. (The excise tax on local telephone service is not affected.)
As a result, the IRS announced last May that it will no longer collect the long-distance taxes. Taxpayers who paid such taxes between February 28, 2003, and August 1, 2006, will be eligible for a refund on the amount of long-distance excise taxes they have paid, plus interest.
These refunds will be available on 2006 tax returns. The Treasury Department expects that refunds to individual taxpayers alone will cost approximately $10 billion.
For individual taxpayers, the IRS has calculated standard amounts that will act as one-time payments. The payment is available for anyone who paid long-distance excise taxes on their landline, cell phone or VOIP (voice over internet protocol) service. The IRS will offer refunds between $30 and $60, based upon criteria including household size and presumed long-distance service usage.
This standard amount was designed to prevent individual taxpayers from having to locate and summarize up to 41 previous monthly phone bills. They can simply take their allowed credit by completing an additional line item on their 2006 tax return.
If greater amounts can be supported, the higher amount can be claimed via a new Form 8913, which is attached to an individual's tax return. For those who are not required to file a tax return, a new Form 1040-EZ-T is available to claim the credit.
Businesses and non-profit organizations must complete the new Form 8913, and they must base their refund claims on actual data from their telephone bills. For now, the IRS is considering establishing an estimation method, similar to what individual taxpayers can use.
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