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IRS to give taxpayers money

The IRS has lost a lawsuit regarding a tax on phone bills. The result is that taxpayers will no longer have to pay this tax and will also be getting money back.

A while back there was a blog on this tax. You may recall that telephone bills had a 3% federal excise tax on long-distance services. The bill permitting this tax was originally enacted in 1898 to fund the Spanish-American War. Several lawsuits were filed regarding this tax be abolished and refunded. The IRS has lost the right to charge this and the Treasury now has to refund approximately $13 billion to taxpayers.

It was the idea of several large corporations to file a lawsuit for the return of this money since we have long ago ended the Spanish-American War. This does affect anyone that has been the recipient of such a phone bill and not just the big companies.

You will not be getting your money back from 1898, but will get back the tax paid after February 2003. That is the good news. The bad news is that you will not see this money until 2007. The IRS will add a line to 2006 tax forms for businesses and individuals that will allow a request for a refund. Individuals will likely get a set amount without having to document their charges.

According to IRS Notice 2006-50 this safe harbor amount is still under consideration. Businesses will most likely have to retain documentation supporting their refund claim in case they are examined. The federal excise tax on local telephone service is not affected, just the long-distance service. However, several Senate Finance Committee members are calling for its repeal.

Phone companies were informed by the IRS to stop collecting the tax on billings after July 31, 2006. The companies are also not required to report to the IRS any refusal by their customers to pay any tax on nontaxable service that is billed after May 25, 2006.

The IRS also holds tax refund monies when someone does not claim their refund or when the recipient has moved without a forwarding address. Each state within the U.S. also holds unclaimed money. To see if you could have money held by a state or federal agency, go to www.CashUnclaimed.com and do a free money search.

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