IRS Unveils Formula For Telephone Tax Refunds

by Mike Godfrey, Tax-News.com, Washington

20 November 2006

The US Internal Revenue Service on Thursday announced a formula that will allow businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds.

“The formula will provide a less burdensome option than gathering up to 41 months of old phone records,” explained IRS Commissioner Mark W. Everson.

In May 2006, the IRS announced that individuals, businesses and tax-exempt organizations who paid the long-distance telephone excise tax can request the refund on their 2006 federal income tax returns.

“Businesses and tax-exempt organizations generally have more varied phone usage patterns than individuals,” Everson added.

“The IRS has met with a number of businesses and tax-exempt organizations to understand their concerns. We believe we have developed a reasonable method for estimating telephone excise tax refund amounts while reducing burden.”

To request a refund, businesses (including sole proprietors, corporations and partnerships) and tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. To complete this form, businesses and tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds.

Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to Form 990-T.

Businesses and tax-exempt organizations can figure their refund amounts by comparing two telephone bills from this year to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bill with a statement date in April 2006 and the bill with a statement date in September 2006.

They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds.

The refund is capped at 2% of the total telephone expenses for businesses and tax-exempt organizations with 250 or fewer employees — which covers more than 99 percent of all businesses. The refund is capped at 1% for those with more than 250 employees.

The IRS has already provided individual taxpayers with the option to use standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions.

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