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Federal Excise Tax (FET) Update
June 15, 2006 – The Internal Revenue Service recently announced it is conceding the dispute over the collection of the 3% federal excise tax on long-distance telephone service. The Department of Justice will no longer pursue litigation regarding the collection of the tax and the Internal Revenue Service (IRS) will issue refunds to taxpayers for federal excise tax paid on long-distance services billed after February 28, 2003, with interest. Taxpayers will be able to apply for refunds for the past three years of long-distance service, on their 2006 tax forms, to be filed in 2007. [ read more: http://www.treasury.gov/press/releases/js4287.htm ]
In its Notice 2006-50, the IRS conceded that long distance telephone services are not subject to the excise tax. The tax was first imposed on long distance phone service in 1898 to pay for the Spanish-American War. Accordingly, the IRS has instructed collectors of the tax to cease collecting and billing the tax as soon as administratively practical but no later than July 31, 2006. This notice does not affect the federal excise tax on local telephone service, and as a result, carriers will still be required to bill, collect and remit the tax on local telephone service.
Control Point Solutions (CPS) expects that in the coming weeks there may be additional guidance issued by the IRS to address the many unanswered questions surrounding how businesses will apply for their qualifying FET refunds. One option under consideration by the government would be for businesses to short pay the FET for their long distance services. Because of uncertain guidelines and potential consequences, Control Point Solutions recommends continuing to pay any invoiced FET tax through July 31, 2006, while allowing carriers the time allotted by the government to modify billing systems and cease federal excise tax charges. We believe this will minimize potential disruptions and still allow clients to recover federal excise tax charges on their 2006 tax returns.
For those clients who are part of our TEM Outsource solution, Control Point Solutions’ audit organization has familiarized itself with the IRS notification and will validate that all invoices processed after July 31, 2006 do not have FET charges billed on long distance services. In the event federal excise tax is charged on an invoice after July 31, 2006, Control Point Solutions will pursue a dispute with that vendor.
For those clients who properly filed an FET claim via the IRS 8849 Form prior to the IRS announcement Control Point Solutions will continue to monitor claim status and pursue client refunds from the IRS. New claims to recover FET payments made prior to March 1, 2003 can no longer be filed via IRS Form 8849 due to the IRS’ three-year statute of limitations. FET Payments on or after March 1, 2003, are covered by the above IRS announcement and evolving refund process.
As always, Control Point Solutions stands at the ready to support our clients in any way by providing documentation and support to your account from our extensive resources. Control Point Solutions will continue to keep you informed as more information becomes available. Please visit our website at: www.controlpointsolutions.com for updates. If you have specific questions regarding the FET update (Notice 2006-50) please contact us by email at info@controlpointsolutions.com and leave a contact name and phone number.
Read more about The Control Point Solution to the IRS Federal Excise Tax Notification
The above information is provided as Control Point Solutions’ general business information to its clients and is not intended as legal or professional advice. Control Point Solutions accepts no liability whatsoever with respect to the information provided herein.
© 2006 Control Point Solutions, Inc.
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