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ARTICLES: REPEAL OF THE FEDERAL EXCISE TAX
The IRS has recently announced the repeal of the Federal Excise Tax (FET) on phone services. Additionally, the
IRS has agreed to give a one-time credit/refund to tax payers (including individuals, corporations and other entities)
for the tax charged for approximately the last 40 months. We estimate this refund will be approximately equal to
one month's phone bill. For individuals, the government will be offering a "safe harbor" credit you
can take on your 2006 tax return. For businesses, you are required to go through all of your phone bills for the
last 40 months to calculate the total amount of tax you have paid. This could be an arduous task.
Please see the news release from the IRS on the repeal below.
FROM THE IRS WEBSITE (www.irs.gov)
The Federal Excise Tax (FET) on telephone services was first imposed in 1898 to help finance the Spanish - American
War. Generally, the FET is 3% of the charges billed for various phone services but not all phone services are
taxed and applications can vary based on the phone service contract.
Corporate and individual taxpayers will only be eligible to request refunds of the FET on their 2006 tax returns.
The maximum refund allowable is all FET paid from Feb. 28, 2003 to August 1, 2006. Interest will be paid on these
refunds.
The specifics of the FET are defined in IRS code section 4251 and 4252. They stipulate that the FET shall be imposed
on communication services, defined as (1) bundled local and long-distance telephone services and (2) toll telephone
services and (3) flat rate plans, like many cell phone contracts. Toll telephone services may be based on both
time and distance or simply time. The tax will still be charged on local-only services.
The tax refund must be requested on your 2006 tax return (tax return which includes December 31, 2006) and substantiation
of requested refund is required to be kept by the tax payer. Unlike individual tax payers, corporations and organizations
will not be entitled to a safe harbor refund; the actual amount must be requested or no refund will be given.
Finally, the IRS requires that any amount refunded that was part of a necessary and ordinary business expense,
and therefore deducted on prior tax returns, must be must be included in income.
We are working with a leading local telecommunications consulting firm to help companies ensure they receive the
maximum credit available. For help calculating your businesses credit, please contact us by phone at 760.271.2381
or via email at contactus@redferncpa.com. |
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