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November 17, 2006

When the IRS finally conceded defeat in the Spanish-American War phone excise tax battle, it announced that it would let individuals claim refunds of the tax using a simple formula on their 2006 1040s. That meant individuals did not have to go through 41 months of phone records to file a claim for a refund of the discredited tax.

Now the IRS has announced (IR-2006-179) a similar program for business filers. Business taxpayers will compare their April 2006 and September 2006 phone bills. The April bills included the tax, and the September bills didn't. They figure the federal tax percentage in the two bills and use the difference to determine how much the now-defunct tax was as a percentage of their phone bill. They will then multiply this by their phone expenses from March 2003 through July 2006 to determine the excise tax refund.

The refund, to be claimed on Form 8913, will be limited to 2% of the phone bill for businsesses with up to 250 employees, or 1% for larger employers. Businesses will also be allowed to instead determine the refund by going through the 41 monthly phone bills.

The IRS press release provides an example:

For example, if a business has an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8 percent. If the September 2006 bill is $1,100 including federal telephone excise tax of $16.50, the tax percentage is 1.5 percent. The business’ long-distance excise tax percentage is 1.3 percent (2.8 percent for April minus 1.5 percent for September). The business multiplies 1.3 percent by its total phone expenses over the 41-month period to arrive at the amount of its refund. If this business had more than 250 employees, its refund would be limited to 1 percent of its total phone expenses for the period. If the business had 250 or fewer employees, the 2-percent cap would apply and would not limit the amount of the refund.

This is a more complex formula than the one for individuals; they claim their refund based on the number of exemptions on their 1040s. It isn't perfect, as the 41-month period doesn't coincide exactly with anybody's annual telephone expense, but it probably will be more popular than a phone-bill by phone-bill analysis.

Link: IRS Q&A on individual phone excise tax refunds

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