Federal Telephone Excise Tax - Credits Against Federal Income Tax

Credits Against Federal Income Tax

Individuals and other entities including non-profit organizations and businesses were able to receive a credit for the unlawfully collected tax when they filed their 2006 Federal income tax returns. Certain persons who paid the long-distance tax on service billed after February 28, 2003 but before August 1, 2006 were eligible for the credit. The three-year lookback period coincides with the statute of limitations for tax refunds. The refund is available to all individuals and corporations which paid the tax, including the deceased and defunct organizations.

However, the IRS stated in 2007 that millions of taxpayers failed to take the credit, leaving $4 billion still to be claimed. The credit can be claimed by those who neglected to take it, but only by amending a 2006 tax return.

The IRS offered two methods for computing the amount of the credit due to individuals:

• Standard amount method. Consumers may elect a pre-determined credit, based on the number of exemptions claimed on their returns. The amounts of the credit are $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions, and $60 for four or more exemptions. This amount includes interest and is based on the tax paid by an average American household during the lookback period.

• Actual amount method. Consumers and other entities may instead elect to itemize the deduction based on the actual amount of tax paid during the lookback period. This would require locating and examining forty-one months of telephone bills to determine the proper credit amount to seek. Filing Form 8913 with the tax return is required in order to claim the actual amount. Interest will then be applied based on the average time elapsed between each quarter where tax was paid and the due date of the 2006 income tax return.

Businesses and tax exempt organizations may either claim the actual amount of excise tax by either calculating the actual amount of tax paid during the lookback period or using an estimate method. The special method involves comparing the April 2006 phone bill with the excise tax on long distance service and the September 2006 bill without it. The percentage difference in the excise tax, subject to a 1% or 2% maximum cap, can be applied to annual or quarterly telephone bills to determine the credit. In all cases, interest will be paid on refunds.