Client Alert

Treasury Decides to Stop Collecting Excise Tax on Certain Communications Services and Agrees to Refund Tax Collected Over Past 3 Years

5/25/2006

Today the Treasury Department announced it would no longer collect tax imposed by section 4251 of the Internal Revenue Code on telephone service the toll charge of which varies only with time and not distance.  In the face of a unified judiciary which had handed the Government a string of court losses, Secretary Snow described the tax as "outdated and antiquated." The IRS issued Notice 2006-50 to inform taxpayers of its decision, to instruct collectors of the tax regarding the effects of its decision, and to inform taxpayers how a refund should be requested.  Notice 2006-50 can be retrieved here.   

The IRS is only allowing refunds for nontaxable telephone service that was billed after February 28, 2003 and before August 1, 2006.  The reason for the February 2003 limit is apparently that the IRS believes a request for a refund for any earlier point (except for refunds already filed) would be barred by the 3-year statute of limitations governing tax refund requests.  The August 2006 date will be enforced because collectors should no longer be collecting the tax on service billed after July 31, 2006.

Today’s decision does not end litigation over pending requests for a refund of the tax that are for tax paid more than three years before the filing a refund claim.  The judiciary will have to decide whether the IRS is correct that the 3-year limitations period applies to refund claims for section 4251 tax.

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