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JULY 2006 ARTICLE - copy and paste into new email to send to your clients.
Federal Telephone Tax - Refund
Added by Taxprosites.com on 7/07/06
Every telephone bill has a 3% Federal Telephone Tax listed as an itemized charge. The law clearly states that long distance phone calls based on time and distance are subject to the tax. For a number of years, most long distance phone calls have been based only on the length of time of the call.
Several years ago, a few large companies sued for a refund of the 3% tax that they had paid on their long distance phone calls. The IRS lost six consecutive cases in four different Circuit Courts and still refused to stop collecting the tax. Finally, in May, 2006, they lost in the Third Circuit Court based in Philadelphia. This was their seventh consecutive loss. At this point they finally decided to obey the law and stop collecting the tax on long distance phone calls.
As a result the IRS has announced that they will refund the 3% tax paid on long distance calls between February 28, 2003 and July 31, 2006. For most individuals the amount of tax paid is very small, probably less than $1/month. The IRS has decided to do the following:
We will not know how much the “safe harbor” amount will be until the IRS announces it. We expect the IRS to issue this information sometime in the late Fall. Interest will be paid on all claims, but it is not certain that interest will be paid if a taxpayer accepts the “safe harbor” amount.
Any refund that you receive will not be taxable, unless you deducted the cost of your phone bills as a business expense. Any interest that you receive on any claim will be taxable, even if the tax refund is not taxable.
Remember the refund is only on long distance phone calls. The tax is also charged on your basic phone service and such services as call waiting. The tax still applies to these services. Your long distance phone carrier should no longer be billing you the tax on long distance phone calls for any bills sent to you after June, 2006. If you are charged the tax on any bill issued after July 31, 2006, you will have to get a refund from your long distance carrier.
It is interesting to note that this tax was first enacted at 10% in 1898 to pay for the Spanish American War. I guess the Spanish American War was very expensive, since we are still paying the telephone tax.
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