Excise tax refund due, but don’t get greedy

The Spanish- American War is all but over for U.S. taxpayers. Like Teddy Roosevelt and his Roughriders, we won.

The spoils will be a refund this year of a 3 percent federal excise tax on long-distance telephone calls. The tax, imposed to fund the popular war, was never rescinded. In the ensuing 108 years, the tax has generated $90 billion for the Treasury.

This year, the IRS will give an estimated $15 billion of that back to residential, business and non-profit tax filers. Even those who have not paid any tax are eligible for a refund, although most taxpayers will get their money in the form of a credit on their 2006 return.

With the last of the W-2 notices due in the mail by Wednesday night, taxpayers anxious for refunds will be filing soon. The excise tax refund, which applies to traditional land lines as well as cellular phone bills, Internet voice service and bundled services, will be a sweetener.

For most taxpayers, calculating the credit will be a no-brainer. The standard credit for a filer claiming a single exemption will be $30; for two, $40; for three, $50; and for four, $60. But heavy users of long-distance service — the excise tax on local service remains in place — may be eligible for more if they have the proper records.

The refund applies to excise taxes paid between Feb. 28, 2003, and Aug. 1, 2006. If taxpayers can document payments in excess of the standard credit within the 41-month period, they can take credits in that amount.

For those who may not file annual returns, the IRS has created Form 1040EZ-T for those who want to claim the excise tax refund.

There is no standard credit for most businesses grossing more than $25,000. But the IRS has created a formula that makes it possible for owners to calculate their credit without having to produce records of phone usage for every month.

To get the refund, businesses must file Form 8913, as do individual taxpayers who want more than the standard credit.

But be careful. The tax filing season has barely begun, and the IRS has already issued a warning to tax filers who deliberately or mistakenly claim extraordinary refunds. Some refunds could only be justified with long-distance bills in excess of $100,000.

“We are seeing some clear abuse,” IRS Commissioner Mark Everson said last week, in a prepared statement. “People requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted.”

Harsh, and the IRS really has no call to play high and mighty.

The agency continued collecting the tax despite rulings by three different U.S. Circuit Courts of Appeal the tax was being inappropriately levied for years. As enacted, the tax was supposed to apply only to phone charges that varied with the distance of a call. But long-distance carriers stopped charging by the mile years ago. Last May, the IRS finally accepted the courts’ interpretation of the law.

Spokane attorney Roy Berg has seen the change coming since President Clinton vetoed a repeal of the excise tax in 2000. He researched the tax, and found several industries had been exempted as far back as 1954. Many companies continued to pay the tax anyway. One was Consolidated Freightways, which was in bankruptcy when in August 2003 he filed a claim on behalf of the company.

For a brief period, 100 percent of his practice was based on excise tax recoveries.

Last month, Berg says, he received notice IRS would be returning a “seven-figure” sum to the Consolidated estate. He will receive a contingency fee, which he did not disclose.

“They had a very communications-intensive business,” Berg says. “It was a bear to wade through.”

The Consolidated payment will wrap up that portion of his practice, he added.

This tax season should also put an end to one of the last echoes of a war that, Teddy Roosevelt notwithstanding, was not one of the most glorious in American history.