Phone Tax Refund

Last updated on May 13th, 2019 at 02:39 pm

The Internal Revenue Service ceased collecting the three percent federal excise tax on long distance phone calls in May. Long distance carriers and cell phone companies must cease collecting the tax by Aug. 1. The tax was imposed in 1898 to help pay for the Spanish American War.

Corporations and individuals will be able to collect a refund of all excise taxes on long distance phone calls billed to them since Feb. 28, 2003.

Since many cellular or wireless carriers offer bundled services with local and long-distance charges grouped together, charges for those services will be eligible for refunds, said Dan Glomski, an accountant with Milwaukee-based certified public accounting firm Komisar Brady & Co. LLP.

The IRS and the U.S. Department of the Treasury will pay interest on the refunds. Taxpayers will be able to claim the refund on their 2006 tax returns.

Most companies that have relatively small work forces between 10 and 100 employees will have returns between $1,000 and $1,600, Glomski said.

"I’ve looked at it for a number of clients," he said. "The magnitude is between $1,000 and a few thousand dollars for the whole period."

Companies that issue cell phones to employees have been the biggest winners so far, Glomski said, because each phone was charged long distance excise

taxes. Most cellular carriers have stopped charging the excise taxes, Glomski said.

While getting between $1,000 to several thousand dollars more in a federal tax return will be appealing to small business owners, Glomski said it won’t be enough to warrant a lot of extra time and effort.

"The biggest message is to hang onto your phone bills, and pull them back for documentation purposes," he said. "Have your phone bills so you (or your accountant) can go through the year and establish what you’re looking for. This is something that shouldn’t be that big of a deal."

Glomski said he has told 15 to 20 clients about the refund potential for the 2006 tax year, but hasn’t done any filings yet because they will be filed next year. He and the partners at Komisar Brady & Co. will be telling clients about the refunds through the coming tax season.

If clients haven’t saved their phone records since 2003, they may still be able to get some documentation back from their phone carriers, Glomski said. But before they spend time worrying about those records, companies should examine a monthly bill to determine how much excise tax they paid.

"They can see how much they’re looking at, and how much work it is worth looking at and how much benefit it will be," he said. "If the benefit is substantial, my strongest recommendation is not to throw away their phone records."

Calculating the refund amount might be difficult for mid to large market companies, said Nancy Peckham, president and chief executive officer of INI Global Inc., a Madison-based telecommunications consultant firm.

"The difficulty lies not only with the ability to obtain that information but also in analyzing the tax information and separating out the portion of the federal excise tax pertaining to long distance and cellular usage from flat rated service," she said. "The complexity for larger corporations is going to be greater. They might deal with hundreds of bills a month."

INI Global recently helped a Chicago corporation claim about $550,000 in excise tax returns, Peckham said. With large clients such as that one, INI Global will sift through phone bills, find excise charges, and tally them by scanning documents and using character-recognizing software.

When clients do not have documentation for billings within a certain period, INI is able to look at previous excise taxes and estimate levels the IRS will accept.

INI has proprietary software, developed by Wauwatosa-based Thin Air Software Inc., which helps find and tally excise taxes within phone bills. The new software will help INI, which works with clients across the U.S., meet what it expects will be a rising demand for its services this year and in early 2007.

The proprietary software also backs up the documentation process, which helps protect the client in the event of an IRS audit.

"We’re creating a tool to create automatic linkages between each usage charges, back to the source document," said Geoff Bastow, founder and chief executive officer of Thin Air Software. "It will leave a detailed audit trail."

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