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Long-Distance Tax Refund Reminder!
The refund will be available either through your service-provider or through the IRS. If your carrier does not provide you with a refund or credit, you will need to seek a refund (or credit) directly from the IRS on your 2006 federal tax return. You will be able to seek a refund for nontaxable charges billed after February 28, 2003, and before August 1, 2006. In this regard, the IRS is developing a safe harbor method for individuals who want to avoid digging up old phone bills. Note, however, that if individual taxpayers do not qualify for the safe-harbor, or if they think that they can obtain a larger refund from actual bills, then they will need to obtain these bills. Finally, entities, such as corporations, will need to dig up bills under all circumstances, since the safe-harbor will not be available to them. Of course, a refund or credit of a tax that was previously deducted could be reportable as current taxable income. We will continue to monitor this refund opportunity. The text of the original notice follows: Hold the Phone: 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 Notice 2006-50) 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 today." 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 service charges. 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, 2006. 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 collector. 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 entities. Finally, the IRS is still working on the exact procedures and forms for refunds, including the possible creation of a "safe harbor" amount. For additional guidance, or if you would like to discuss how this will affect your tax planning, please contact our firm at (412) 881-4411. If you do not have a contact at Case | Sabatini, simply ask for Jim Dee and he'll make sure to put you in touch with the CPA whose background most closely matches your needs. Visit Case | Sabatini's Home Page. Disclaimer: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any penalties that may be imposed, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. |
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As
a reminder and a follow-up to a column in a newsletter that we previously
sent to you (original text repeated below), the IRS has decided to
stop the collection of taxes on telephone charges related to long-distance
services and "bundled" services (such as local and long-distance service
provided under the same charge). As we previously indicated, you may be
entitled to a credit or a refund if you paid these taxes.