2007 Lane Reports

Dialing into Savings: Don't Miss a One-Time Refund On Your 2006 Tax Return

Thursday, February 1, 2007
by John J. Lapinski, J.D.

For over a century, the federal government has been collecting a tax designed to pay the cost of a war that lasted 113 days. However, this year individual and corporate taxpayers will have a one-time opportunity to receive a refund for payment of the federal telephone excise tax. Taxpayers will be able to claim a telephone tax credit on their 2006 federal income tax return in order to refund previously collected federal excise taxes on long-distance or bundled communication services.

At the end of the Spanish-American War in 1898, Congress looked for a way to pay for the cost of the war with a minimum of public uproar. They settled upon a "luxury" tax on the recently introduced new technology known as the telephone. Since at that time telephone ownership was almost exclusively among wealthy Americans, a federal excise tax on long-distance telephone service was viewed as a relatively painless way to pay for the war. However, like many taxes, the federal excise tax on telephones did not disappear after the war was paid for and in fact continued on for more than a century afterwards.

Over the years, the excise tax became the subject of numerous lawsuits, brought primarily by large corporate users of telephone services, in an effort to seek relief from the outdated tax. Despite numerous victories for these plaintiffs in the various federal courts across the country, the Internal Revenue Service continued to fight to keep the excise tax alive as it generated billions of dollars in revenues to the U.S. Treasury. Finally, after five separate federal appeals courts held that the tax does not apply to long-distance service as it is billed today, the IRS relented and announced that it would stop collecting the federal excise tax on long-distance telephone service.

In conceding the legal dispute, the Internal Revenue Service announced that it would also issue refunds of the tax on long-distance service for the past three years. Taxpayers will have a one-time opportunity to apply for a refund on their 2006 tax forms, to be filed in 2007. However, this will not affect the federal excise tax on local telephone service, which remains in effect, as well as various state and local taxes and fees paid by telephone customers. To their credit, IRS did call upon Congress to terminate the remainder of this antiquated tax by repealing the excise tax on local service as well.

Any individual, business or nonprofit organization that paid the 3% tax for long distance or bundled service billed after Feb. 28, 2003 and before Aug. 1, 2006 is eligible to request the refund on their 2006 federal tax return. This includes anyone who paid the tax on long-distance service for landline, wireless, or Voice over Internet Protocol (VoIP) service. The IRS is also refunding taxes collected on telephone service under plans that do not differentiate between long distance and local calls including bundled service.

The IRS is making it easier for individual taxpayers by offering a standard refund amount, so taxpayers don't need to gather old phone bills. Taxpayers who choose the standard amount will only need to fill out one line on their tax returns. Individual taxpayers can take a standard amount from $30 to $60 based on the number of exemptions claimed on their tax return. For those claiming:

  • One exemption, the standard refund amount is $30
  • Two exemptions, the standard refund amount is $40
  • Three exemptions, the standard refund amount is $50
  • Four exemptions or more, the standard refund amount is $60

Taking the standard amount is optional and individuals can choose instead to complete Form 8913 detailing the amount of tax paid during the 3-year period and attach it to their regular income tax returns.

Businesses and nonprofits should pay particular attention to this refund opportunity, as the amounts can be significant. Unlike individuals, there is no standard refund option for businesses and nonprofits, which are required to complete Form 8913 and base their refund requests on the actual amount of tax they paid on long-distance services and attach this form to the income-tax returns. Nonprofits, including churches, charities and other tax-exempt organizations, should attach it to Form 990-T. Alternatively, businesses and tax-exempts can review their bills for a 2 month period and use a special formula to figure the refund.

The IRS has designated a web page to answer frequently asked questions about the telephone tax refund, which can be viewed at www.irs.gov/newsroom/article/0,,id=164032,00.html. Of course, you can always contact The Law Offices of Marc J. Lane, A Professional Corporation to discuss this or other tax savings opportunities.

The Internal Revenue Service has reported that more than one-third of early tax return filers failed to claim the telephone tax refund. The U.S. Department of the Treasury estimate the amount refunded to individuals alone will be about $10 billion this year. Don't miss this one-time opportunity to claim your refund.



John J. Lapinski serves as an Associate Attorney for The Law Offices of Marc J. Lane, a Professional Corporation. Mr. Lapinski is a graduate of Chicago-Kent College of Law (J.D.) and Elmhurst College (B.S.).



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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright © 2007 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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