How to Get A Telecom Tax Refund For Your Business

After 108 years, the federal government has finally come to the conclusion that the federal excise tax on long-distance telecommunications services should be eliminated. That is good news for millions of U.S. businesses who have religiously paid a monthly 3% surcharge on long-distance calls for both land lines and wireless services for all these years.

The Federal Telephone Excise Tax began in 1898 as an easy way for the government to raise money to fund the Spanish American War. Recent lawsuits have questioned its current role and this litigation has created intense lobbying on Capitol Hill for an end to the superfluous tax altogether.

The Treasury Department has finally given in and agreed to refund taxes for long-distance service billed to businesses for the period after February 28, 2003 and before August 1, 2006. Keep in mind that the tax will continue to apply to local-only service. The refund only applies to long-distance services.

Telecom Tax Refund Specifics

Who is eligible? Any and all U.S. businesses and tax exempt organizations are eligible for the refund providing they were in operation at any time during the period from March 1, 2003 through July 31, 2006. This would include any corporate entity, S Corp., partnership, Trust, etc. In addition, the business must also have incurred phone expenses from April 2006 through September 2006 for it to be eligible for a refund.

The IRS makes it easy for individual taxpayers because of the standard refund amount set between $30 and $60. Calculating refunds for businesses and nonprofit organizations is a bit more complicated.

You Have Two Choices for Calculating Refunds

The IRS has come up with two viable methods for calculating and subsequently obtaining the appropriate refund. First, businesses can document actual amounts of refundable long-distance telephone excise taxes for the entire 41 month period. This method requires the obvious task of digging up dozens of individual long-distance and wireless bills.

An alternative method is to use a calculation formula that has been approved by the IRS. This method requires using the amounts listed on two specific telecom invoices - April 2006 and September 2006. Each of these invoices serves as a representative month for purposes of computation.

By dividing the total Federal telephone excise taxes incurred by the total phone bill for each of these representative months, then subtracting the September percentage from the April percentage, you will come up with the percentage that your organization can safely use to figure your entitled telecom tax refund.

For businesses and nonprofit organizations with more than 250 employees, the refund is capped at 1% of the total telephone uses expenses paid. You may still use the formula even if your business or organization only operated for a portion of the 41 month period. If you were not in business or operating from April-September, 2006 you may not use this formula for calculations.

So Which Method Is Best?

You will obviously want to maximize your business telecom tax refund, but which method will help accomplish that objective? The only way to answer that question with certain accuracy is to calculate the total refund using actual taxes paid (all 41 months), and then compare it with the total refund amount calculated using the formula method.

The reality is that most businesses will not take the time or put forth the effort to gather up and examine 41 months' worth of telecom bills. The IRS obviously came to the same conclusion as well.

TelCon Associates' consultants do agree that using the data collected from the entire 41 months of telecom invoices will more often than not result in a higher refund amount.

The formula method was created to help simplify the process for businesses and tax exempt organizations to obtain the appropriate refund due.

In addition, officials at the IRS would surely have considered the huge number of customer requests for copies of past invoices telecom carriers would be forced to deal with. The formula method of calculating refunds helps limit the sheer volume of customer inquiries had the IRS NOT implemented the formula option.

A Few Helpful Tips

Save time and money by following these helpful hints:

1) Allow plenty of time for telecom carriers to respond to requests. If you plan on requesting past invoices from your telecom carrier, begin the process immediately. If you choose to calculate your refund on the past 41 months of invoices, the task of gathering those bills will be yours. Keep in mind that carriers will only be able to supply you with the last 3-6 months of invoices.

2) File taxes as early as possible. The "early bird" does catch the worm in this case. Your business accountant may have more control over this one, but the earlier you file, the quicker you will receive the tax refund you are due.

3) Choose only one method of calculation. The IRS is very clear about this. Be sure you do not use one method to calculate a portion of the 41 month time period, and the other method for the rest. Choose one and stick with it.

4) Do apply for the refund, even if it is small. The government will only send you money if you jump through the hoops they require. The refund total estimated by the U.S. Treasury Dept. to individuals alone will top $10 billion. Business refunds should equal or even exceed that number. At the very least, use the formula calculation method and be sure to submit form #8913 with your corporate taxes.

5) Consider working with a professional telecom auditing and consulting firm. Outsourcing these types of telecom tasks will save money and time. Professional telcom consulting firms are experts at dealing with carriers and are familiar with the details of obtaining maximum credits and refunds.

TelCon Associates can handle the whole process for you as part of our telecom audit and cost-reduction services. We will help you obtain the maximum FET refund possible for either method you choose. We have included this service as part of our complete risk-free analysis audit for voice and data services. Click here for specific information on our telecom tax recovery and audit services.

That's it for this month. If you have questions about this newsletter, or regarding a specific telecom cost-reduction strategy, a telecom audit or telecom bill management need, please don't hesitate to contact us today or call us toll-free at 1-888-383-3200, Ext. 5900.

Sincerely,