The Formula Business Is Waiting For: IRS Reveals How to Calculate Excise Tax Refund
“Businesses and tax-exempt organizations generally have more varied phone usage patterns than individuals,” Internal Revenue Service (IRS) Commissioner Mark Everson explained in a statement announcing a formula businesses and tax-exempt organizations can use to estimate their federal telephone excise tax refunds. “The IRS has met with a number of businesses and tax-exempt organizations to understand their concerns. We believe we have developed a reasonable method for estimating telephone excise tax refund amounts while reducing burden.”
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The IRS announced in May 2006 that individuals, businesses and tax-exempt organizations who paid long-distance telephone excise tax can request the refund on their 2006 federal tax returns. The refund is capped at 2 percent of the total telephone expenses for businesses and tax-exempt organizations with less than 250 employees. Refunds for businesses having more than 250 employees are capped at 1 percent.
Businesses and tax-exempt organizations can estimate their refund amount by comparing two telephone bills from this year to determine the percentage of their telephone expenses attributable to the long-distance excise tax. The bills they should use are the bill with a statement date in April 2006 and the bill with a statement in September 2006. They must first figure the telephone tax as a percentage of their April 2006 telephone bills (which included the excise tax for both local and long-distance service) and their September 2006 telephone bills (which only included the tax on local service). The difference between these two percentages should then be applied to the quarterly or annual telephone expenses to determine the amount of their refunds.
For example, if a business has an April 2006 telephone bill of $1,000, which includes federal telephone excise tax of $28, the tax percentage is 2.8 percent. If the September 2006 bill is $1,100, including federal telephone excise tax of $16.50, the tax percentage is 1.6 percent. The business’ long-distance excise tax percentage (April tax percentage less September tax percentage) is 1.2 percent. The business multiples the long-distance excise tax percentage (in this case 1.3 percent) by its total phone expenses over the 41-month period to arrive at the refund amount. If this business had more than 250 employees, the refund would be limited to 1 percent of its total phone expenses for the period. If the business had 250 or fewer employees, the 2 percent cap would apply.
Businesses, including sole proprietorships, corporations and partnerships, and tax-exempt organizations, must complete Form 8913, Credit for Federal Telephone Excise Tax Paid. To complete this form, businesses and tax-exempt organizations may determine the actual amount of refundable long-distance telephone excise taxes they paid for the 41 months from March 2003 through July 2006, or use the formula to figure their refunds. Businesses should attach Form 8913 to their regular 2006 income tax returns. Tax-exempt organizations must attach it to form 990-T.
Options for requesting this refund vary for sole proprietors, who file a Schedule C with the Form 1040, depending on the gross income reported on the Schedule C. Sole proprietors who report gross income of $25,000 or less on their Schedule C may use the standard amounts or request a refund based on their actual expenses. Sole proprietors reporting more than $25,000 gross income have three options:
- they can use the standard amounts which cover both personal and business expenses.
- they can use the formula for their business expenses and the actual amounts for their personal ones.
- they can choose to use actual amounts for both business and personal.
Similar rules, depending on the amount of gross income reported on Schedule F or Schedule E, apply to farmers and individual owners of rental property.
Individual taxpayers have the option to use standard amounts based on the number of exemptions allowed to that taxpayer. Individual taxpayers can request a $30 refund with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions.
Trusts and fiduciaries may not use the standard amount available to individuals. They should use the formula for businesses and tax-exempt organizations to figure their refunds, or request the actual amount paid.
Details on the telephone tax refund will be included in 2006 tax return materials and on the IRS web site.