IRS to Stop Collecting Telephone Tax

The Internal Revenue Service has agreed to stop collecting the federal excise tax assessed on long-distance telephone calls. The 3% federal excise tax has been the subject of numerous lawsuits, and the Treasury Department announced it has ordered the IRS to stop collecting the tax. In addition, the Treasury stated that the "Internal Revenue Service will issue refunds of tax on long-distance service for the past three years. Taxpayers will be able to apply for refunds on their 2006 tax forms, to be filed in 2007." According to the IRS annoucement,

"Taxpayers will be eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003. Interest will be paid on these refunds.

Taxpayers will claim this refund on their 2006 tax returns. In order to minimize burden, the IRS expects to announce soon a simplified method that individuals may use.

'So taxpayers won’t have to spend time digging through old telephone bills, we’re designing a straightforward process that taxpayers may use when they file their tax returns next year,' said IRS Commissioner Mark W. Everson. 'Claiming a refund will be simple and fair.'"

No word yet on what these tax forms will look like, but tax journalist Kay Bell predicts the IRS will publish "Probably some worksheet or perhaps a table a la the ones for the state sales tax deduction" to help taxpayers claim their excise tax refund. Not to to worry, say I. Sign up for my weekly newsletter, and I will let you know when the IRS creates the tax form, and I will tell you how to fill it out.

Normally, taxpayers have three years to claim a tax refund. Usually, the IRS pays interest on late refunds only if there has been a substantial delay in processing the tax return. In this case, the IRS is voluntarily agreeing to pay interest on the excise tax refund. So that's some really good news!

Depsite assurances that claiming the excise tax refund will be simple, I would urge you to dig through your phone bills now. If you are like me, I throw away bills as soon as I know the bill has been paid. In fact, most of the time I get summaries of my bills sent via email. So I am going to try to download my phone bills from February 2003 to the present. I digged up a cell phone bill from December 2005, and it shows a federal excise tax of 89 cents for the month. Let's do some quick math: three phone lines (two cell phones and one land-line) times 89 cents per month times 36 months, I'm guessing I have an excise tax refund of about $96.12 plus interest. Hmm. This is not quite the tax refund I imagined, but I'll take it. If you are thinking of converting your Traditional IRA to a Roth IRA, you could convert $384 of your Traditional IRA to a Roth and use this $96 excise tax refund to pay the tax on the rollover (assuming you are in the 25% tax bracket).

More information:

• Call Me - history of the excise tax and other musings from Kay Bell
• Government to Stop Collecting Long-Distance Telephone Tax - IRS Announcement (IR-2006-82)
• Treasury Announces End to Long-Distance Telephone Excise Tax - Treasury Department Annoucement (JS-4287)
• Communications Excise Tax; Toll Telephone Service - IRS Notice 2006-50, PDF format, 14 pages
• Treasury: Telephone Tax Refund for Everyone - CNN
• Wireless Consumers Get Excise Tax Reprieve - TMCnet
• Treasury Concedes Telephone Tax Fight, Promises Refunds - Associated Press via Chicago Tribune
• Treasury Disconnects Tax on Long-Distance Calls - MarketWatch
• IRS Abandons Telephone Excise Tax on Long-Distance Calls - The Tax Foundation
• Can You Hear Me Now? IRS to Refund $15 Billion of Telephone Taxes to Consumers - TaxProf Blog and includes links to the court cases that forced the IRS to stop collecting this tax.

Update: Find out to to claim the Phone Tax Refund.

Technorati Profile