LONG-DISTANCE TELEPHONE TAX REFUND FOR ALL TAXPAYERS

Since 1898 Americans have been paying a federal excise tax of 3% on long distance calls that has now been repealed by Congress. This tax was originally intended to be a luxury tax for wealthy Americans. The Treasury Secretary has indicated the law has become antiquated and also would like to see Congress repeal this tax on local service as well.

As a result, taxpayers who were billed after February 28, 2003 and before August 1, 2006 can claim a refund for the tax paid during this time period on their respective 2006 tax return. A tax refund can be claimed on tax returns for the 1040 series, 1041, 1065, 1120 series and 990-T. There will be instructions available for each of these forms once they come out on how to report the refund.

There will be two ways to determine the amount of the refund for individual taxpayers (1040 series). The IRS will soon be announcing a simplified method in which no documentation will be required to support the amount for a refund of between $30 and $60 depending on the number of exemptions. This "safe harbor" amount is only available to individual taxpayers. An individual taxpayer may choose to determine the actual amount based on the amounts actually paid and billed.

All other taxpayers (1041, 1065, 1120 series and 990-T) now have two options to determine the federal excise tax refund. This will be reported on form 8913 and attached to their 2006 income tax return. One option is to determine the actual amount paid and billed. All taxpayers who determine the actual amount of refund should retain their records to substantiate the actual amount of the claim including proof of amount billed and paid. As an alternative the business or tax exempt organization can determine their refund by comparing their bills with a statement date of April 2006 and Septemer 2006. The September bill excluded the tax and the April bill included it. Go to Telephone Tax Refund for Businesses and Exempt Organizations for an example and get further information on the refund for businesses and exempt organizations.

More details for individuals and businesses can be found at the IRS Telephone Tax Refund web site . There will be further guidance on this including the safe harbor amount and other details in the future.

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This article was intended to provide general information about the long distance telephone tax refund. It does not contain all the rules and exceptions that may apply to your situation. If you have further questions, I can be reached at www.dgoodmancpa.com.

About the Author

Dianne Goodman, CPA, FCPA - Specializes in servicing Small Businesses and Individuals. Visit www.dgoodmancpa.com for relevant and current information on a variety of financial and tax issues focusing on small businesses and individuals or call at 1-888-851-1975.

CONTACT INFORMATION:

Dianne Goodman, CPA, FCPA
Comprehensive Small Business Solutions, PC
505 323-2307
1 888-851-1975 toll free
www.dgoodmancpa.com