| The government's discovered that sometimes you | | | | by the specific telecommunication carriers. |
| can't give money away. After losing a series of tax | | | | Communication charges are not limited by the manner |
| decisions involving the federal 3% telecommunications | | | | of delivery so that in addition to land lines, cell phones, |
| excise tax, the IRS conceded defeat and agreed to | | | | VoIP also qualify for refunds. Refunds are further |
| refund over-collected telecommunications taxes. | | | | increased by interest on the tax payments dating back |
| According to a Treasury Inspector General Report | | | | to the time of payment over the 41 month period. |
| ("Report") issued on April 24, 2008, the telephone | | | | The Report noted that the IRS had competing |
| excise tax refund was the most wide-reaching tax | | | | objectives in administering the program: 1) minimize |
| refund in the history of the IRS, estimated to affect | | | | taxpayer and IRS burden with requesting, processing |
| between 13.9 and 15.9 million business taxpayers. | | | | and paying the refunds; 2) minimize refunds in excess |
| Despite the enormity of the refund program and | | | | of taxes collected; and 3) discourage overstated |
| substantial outreach efforts by the IRS, the Report | | | | refund requests. While the IRS encouraged taxpayers |
| indicates that only 5.6% of eligible businesses | | | | to file for refunds, it also warned against fraud and |
| participated and only 17.5% of the $5 billion in potential | | | | established screens to help identify refund claims that |
| refunds were claimed by businesses. Put another way, | | | | appeared to be overstated. |
| of the $5 billion collected over $4 billion is still owed to | | | | Attempting to explain the low level of business |
| businesses and 94% of businesses are still eligible for | | | | participation in filing refund claims, the Report noted |
| refunds. | | | | several possible explanations, including: 1) perception |
| While praising the IRS outreach efforts, the Report | | | | that work and associated fees outweighed the |
| notes "we believe a significant amount of the | | | | amount of credit; 2) incorrect perception that telephone |
| telephone excise tax collected could go unrefunded, | | | | expense would have to be reversed from prior years |
| and many taxpayers might still be eligible to file a | | | | adding additional tax preparation expense; 3) concern |
| claim." | | | | that they would not be able to provide the necessary |
| Even though the taxes collected relate to the period | | | | records needed to support the credit claim; and, 4) |
| March, 2003 through July 2006 (41 months), the IRS | | | | businesses and many tax preparers were not aware |
| developed a procedure to toll the normal statute of | | | | of the credit. |
| limitations, making calendar year taxpayers eligible for | | | | The Report included recommendations to the IRS for |
| refunds 3 years from filing their 2006 income tax | | | | improvement including improving the screening criteria |
| return. To request the excise tax refund, taxpayers | | | | to better identify potentially fraudulent claims and |
| were to file Form 8913 with their 2006 income tax | | | | shifting resources for future programs to optimize the |
| return. For those who missed the credit or understated | | | | effectiveness of its mission. The most alarming |
| the credit, Form 8913 should be filed with an amended | | | | recommendation of the Report asked that the IRS |
| return to obtain a refund. Eligible taxpayers include | | | | contact taxpayers and tax preparers who did not |
| corporations, S-corporations, partnerships and tax | | | | claim the credit to find out why the refunds were not |
| exempt entities. | | | | claimed. The IRS agreed with this recommendation |
| Businesses may use either the actual or the estimation | | | | and indicated it would work with Treasury to better |
| method. For business with 250 or fewer employees, | | | | understand why the telecom excise refund tax wasn't |
| the estimation method allows up to a 2% credit based | | | | being claimed. |
| on telecommunication expenses for the 41 month | | | | Although counter intuitive, it's clear from the Report |
| period. For businesses with more than 250 employees, | | | | that the IRS is interested in businesses obtaining their |
| the estimation method probably severely understates | | | | telecom excise tax refund. The good news for |
| the refund amount by capping the credit at only 1% of | | | | businesses and the IRS is that with a three year |
| telecommunication charges. The actual refund method | | | | statute of limitations for making the claims, both the |
| is usually over 2.5% but requires more analysis of the | | | | IRS and businesses can still accomplish the telecom |
| underlying communication charges and taxes imposed | | | | excise tax refund program goals. |