Hold the Phone:
Long-Distance Tax Refunds Could Mean a Significant
Windfall for Some
The IRS recently threw in the towel on a
tax that has been a point of contention for years. In a new
series of pronouncements, the IRS conceded that long-distance
telephone charges should not be subject to federal income tax.
Bowing under the weight of public pressure and recent setbacks
in court cases, the IRS announced that it will stop collecting
the 3 percent excise tax on long-distance services. (IRS
The tax was
originally imposed in the late 1800s to help finance the
Spanish-American War. Now, more than 100 years later, the IRS
announced that it will issue credits or refunds of all excise
taxes paid on long-distance service billed after February 28,
2003 — plus interest. The IRS noted that decisions in five
federal appeals courts have held "the tax does not apply to
long-distance service as it is billed
Some of the key points of the
new IRS policy:
Both long-distance service and "bundled"
service (such as local and long-distance service provided
under the same charge) are not taxable. As a result, taxpayers
are no longer required to pay tax for long distance services.
However, the tax will continue to be collected on local-only
Collectors or taxpayers may request a refund of
tax paid for any nontaxable service that was billed after
February 28, 2003, and before August 1,
The IRS has directed collectors to stop
collecting and paying over tax for nontaxable services billed
after July 31, 2006. Consequently, the IRS will deny refund
requests on nontaxable services billed after July 31, 2006.
Such requests should be directed to the
Taxpayers may request a credit or tax refund
only on their 2006 federal tax returns. The new IRS Notice
also provides guidance for credits or refunds to partnerships,
S corps, estates and trusts, tax-exempt organizations,
corporations and other non-filing
Finally, the IRS is still
working on the exact procedures and forms for refunds,
including the possible creation of a "safe harbor" amount.
"Taxpayers won’t have to spend time digging through old
telephone bills," said IRS Commissioner Mark W. Everson.
"Claiming a refund will be simple and
We expect to have more details on
this new tax break shortly and will report them to you.