May 14, 2012

More Time to Get Money from Uncle Sam – Extended Telephone Tax Refund Opportunity

By Ali Griffith, Staff, Tax Services

More Time to Get Money from Uncle Sam – Extended Telephone Tax Refund Opportunity

The IRS has recently announced that it will honor a telephone excise tax refund or credit claim if submitted by July 27, 2012. Many taxpayers may have taken advantage of this opportunity in the past, but if you’re one who has not, it’s definitely worth the pay-out!

Background of Telephone Excise Tax

The telephone excise tax is a 3% tax imposed on amounts paid for communication services, including local and long-distance telephone services. This tax was originally based on the distance of the service; however, once these communication service companies began offering local and long-distance services at bundled flat-rates, the IRS did not update its tax scheme. In 2006, the IRS announced that it would no longer assess tax on long-distance and bundled services. As a result, the IRS is now accepting and honoring refund claims for these taxes billed between March 1, 2003 and July 31, 2006.

Options for Calculating your Refund

There are a few options for calculating the refund or credit:

  1. Safe Harbor (Standard) Formula – This formula is only for individuals and it is based on the number of exemptions filed on your 2006 income tax return. Standard refunds range from $30 to $60.
  2. Actual amount of tax paid – Calculating your actual amount of tax paid may provide you a much higher benefit. You will need to obtain billing information from your service provider for the entire 41 month period.
  3. Special Formula for Businesses – Businesses may use a special formula by using only 2 months of bills.

How to Submit Your Refund

There are three ways to submit a claim for a credit or refund:

  1. If you were not required to file a return in 2006, you can still apply for a refund using form 1040EZ-T.
  2. If you are an individual using the standard formula, you should amend your 2006 return using form 1040X.
  3. If you are an individual or business applying for a refund of the actual amount of taxes paid, then you will need to file form 8913, Credit for Federal Telephone Excise Tax Paid.
  4. All businesses, whether using the actual amount of tax paid or using the special formula, must file form 8913.

A Few More Items to Note

  1. The tax refund is available even if you filed a 2006 return in a loss position.
  2. If you filed Schedule C, E or F in 2006 with gross receipts exceeding $25,000, you may be eligible to use a special formula for businesses.

While many companies have previously taken advantage of this refund opportunity, there is still time for those who have not. Please consult your Marcum LLP Tax Advisor for insight (including a cost/benefit evaluation) on potential refund options.