Refund Claims for Federal Telecommunications Excise Tax

(Tax Planning Alert dated July 13, 2006)

The Treasury Department recently announced that all businesses and individuals will be able to claim refunds of federal telecommunications excise taxes paid during the period March 1, 2003 through July 31, 2005 on their 2006 income tax returns.

Finally conceding several long fought legal disputes, the Treasury Department will scrap the federal excise tax (FET) on long distance phone calls and reimburse businesses and individuals for taxes paid from March 1, 2003 through July 31, 2006. The Treasury Department is directing the Justice Department to end litigation in this matter and is directing the phone companies to stop billing and collecting the FET on long distance and “bundled service” after July 31, 2006.

Business Refunds

Corporations, partnerships, S corporations, estates and trusts, and tax exempt organizations are all eligible for the FET refunds or credits. These entities may request a refund or credit of the taxes actually paid on nontaxable long distance services billed during the open period. Requests must be made on the company’s 2006 federal income tax return.

Individual Refunds

Individual taxpayers may request refunds or credits on their 2006 individual federal income tax returns. Unlike businesses, individuals can use either of the following amounts for their claims:

“Safe Harbor” amount. This option is available if the individual paid all taxes billed by the telecommunications provider and did not receive a refund or credit from the provider. These amounts will not require documentation. The IRS is still considering the amount of the safe harbor and will announce it in later guidance.

Actual amount paid during the open period.

In addition, the IRS will pay interest on refunds or credits based on the actual amounts paid. Also, FET based on local-only service will be unaffected by this decision and remain in effect.

For further information on how this act may directly impact your tax situation, please contact Jennifer Broyles at (800) 270-9629.


WE ARE REQUIRED BY IRS CIRCULAR 230 TO INFORM YOU THAT THE FOLLOWING DISCUSSION WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED, NOR RELIED UPON, BY ANY TAXPAYER FOR THE PURPOSE OF AVOIDING ANY PENALTIES THAT MAY BE IMPOSED UNDER FEDERAL TAX LAW.  THE ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTIONS OR MATTERS ADDRESSED IN THE DISCUSSION.  EACH TAXPAYER SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

back to PYA Alerts