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Federal Excise Tax Refund on Long Distance Service
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The Internal Revenue Service has stopped collecting the federal excise tax on long-distance telephone service. The tax on telephone services was first imposed in 1898 as a "luxury" tax on wealthy Americans who owned telephones. The federal excise tax on telephone calls is not compatible with today's modern information-age society. The current rate is 3% of the charges billed for these services. The reason for this change follows decisions in five federal appeals courts holding that the tax does not apply to long-distance service as it is billed today. This does not affect the federal excise tax on local telephone service, which remains in effect. Likewise, various state and local taxes and fees paid by telephone customers are also unaffected. Taxpayers are eligible to file for refunds of all excise tax they have paid on long-distance service billed to them AFTER Feb. 28, 2003 and BEFORE August 1, 2006. This refund is available to anyone who paid long-distance taxes on landline, cell phone or Voice over Internet Protocol (VoIP) service. Interest will be paid on these refunds. This refund can ONLY be claimed on your 2006 tax return. You do not have to itemize deductions to claim this refund. Calculation for INDIVIDUALS There are TWO methods in calculating the refund amount: Method 1: Add up the actual amount of federal excise tax on long distance service you paid on 41 bills (period March 1, 2003 to July 31, 2006) and claim that refund amount. Method 2: In order to minimize burden, the IRS is allowing individual taxpayers to use a standard amount from $30 to $60 based on the number of exemptions claimed on their tax return. For those claiming:
The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects the long-distance phone tax paid by similarly sized families or households. Using this amount is the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records. IMPORTANT NOTE: If claiming the standard amount, it already includes interest. If you are wondering why you can only get a refund of the telephone excise tax for the past few years, it is because under the applicable statute of limitations in the Internal Revenue Code, the IRS is generally not permitted to refund taxes that were paid more than three years before the date on which the refund program was announced. Calculation for BUSINESSES & TAX-EXEMPT ORGANIZATIONS There are TWO methods in calculating the refund amount: Method 1: Add up the actual amount of federal excise tax on long distance service paid on 41 bills (period March 1, 2003 to July 31, 2006) and claim that refund amount. Method 2: In order to minimize burden, the IRS is allowing businesses and tax-exempt organizations to use a standard amount. They can figure their refund amounts by comparing two telephone bills from year 2006 to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bill with a statement date in April 2006 and the bill with a statement date in September 2006. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds. The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees. The refund is capped at 1% for those with more than 250 employees. EXAMPLE: If a business has an April 2006 telephone bill of $1,000, which includes Federal telephone excise tax of $28, the tax percentage is 2.8%. If the September 2006 bill is $1,100 including Federal telephone excise tax of $16.50, the tax percentage is 1.5%. The business’ long-distance excise tax percentage is 1.3% (2.8% for April minus 1.5% for September). The business multiplies 1.3% by its total phone expenses over the 41 month period (March 1, 2003 to July 31, 2006) to arrive at the amount of its refund. If this business had more than 250 employees, its refund would be limited to 1% of its total phone expenses for the period. If the business had 250 or fewer employees, the 2% cap would apply and would not limit the amount of the refund. Information for Sole Proprietors Options for requesting this refund vary for sole proprietors, who file a Schedule C with the Form 1040, depending on the gross income reported on the Schedule C. Sole proprietors who report gross income of $25,000 or less on their Schedule C may use the standard amounts or request a refund based on their actual expenses. Sole proprietors reporting more than $25,000 of gross income have three options: they can use the standard amounts which cover both personal and business expenses, they can use the formula for their business expenses and actual for their personal ones, or they can choose to use actual amounts for both business and personal. Information for Farmers and Owners of Rental Property Similar rules depending on the amount of gross income reported on Schedule F or Schedule E apply to farmers and individual owners of rental property. Information for Trusts Trusts and fiduciaries may not use the standard amount available to individuals. They should use the formula to figure their refunds, or request the actual amount paid. |
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