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The IRS announced that it will stop collecting the federal excise tax on long-distance telephone service on May 25th 2006.

The current rate is 3% of the charges billed. The IRS announcement follows decisions in five federal appeals courts holding that the tax does not apply to long-distance service as it is billed today.

Taxpayers will be eligible to file for refunds as tax credits of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003. Interest will be paid on these refunds.

Taxpayers will claim this refund on their 2006 tax returns. In order to minimize burden, the IRS expects to announce soon a simplified method that individuals may use.

The IRS announcement does not affect the federal excise tax on local telephone service, which remains in effect. Likewise, various state and local taxes and fees paid by telephone customers are also unaffected.

More information can be found in IRS Notice 2006-50.

Almost all long distance carriers passed the tax credit to their customers.
But Verizon announced that they will charge the same amount as surcharge to its long distance customers.

See how monopoly in the market creates unfavorable situations to the end customers. I feel this is another reason FCC should tighten its laws to regulate the telephone company mergers.

The highlights are:

1. IRS refund of up to $60 on their 2006 federal returns
2. For the 2006 return, a person filing a return with one exemption can claim $30; two exemptions, $40; three exemptions, $50; and four or more exemptions, $60.
3. Taxpayers who think they deserve a larger refund can claim it but will have to produce old telephone bills or other records of payment if audited

http://www.washingtonpost.com/wp-dyn/content/article/2006/08/31/AR2006083101749.html

IRS is looking for ways to make the refund process easier for businesses and nonprofits. Though they will be required to base their telephone tax refund on the actual amount of tax paid, the IRS is considering an estimation method they may use. Comments and suggestions for simplifying the process for businesses and nonprofits should be sent to Telephone.Tax@irs.gov by September 15, 2006.

The IRS will refund to you the taxes on long-distance service billed to you for the period after Feb 28, 2003 and before Aug 1, 2006. Taxpayers should request this refund next year when they file their 2006 tax returns. You may want to start gathering your phone bills since Feb. 28, 2003. As with any other line item on your return, starting early and keeping good records always makes the tax-preparation process easier.

You can claim telephone tax credit, even if you don’t have an income tax filing requirement. You will need to file a Form 1040EZT, a simple form that basically asks you to provide your name, address, Social Security number, the amount you are claiming, and your signature.