Exempt Organizations Advisory - IRS Provides Formula for Telephone Excise Tax Refund

On May 25, 2006, the IRS announced that it would stop collecting the federal excise tax on long-distance telephone service effective August 1, 2006 and would issue refunds of all excise tax paid on long-distance service (plus interest) for the period March 1, 2003 through July 31, 2006. Taxpayers who paid the tax can request a refund on their 2006 federal income tax returns. (Please see Notice 2006-50 for additional information.)

On November 16, 2006, the IRS issued IR-2006-179, which outlines a formula that will allow businesses and tax-exempt organizations to estimate their federal telephone excise tax refunds, rather than gather old phone records. To request a refund, businesses and tax-exempt organizations must complete Form 8913, Credit for Federal Telephone Excise Tax Paid, which must be attached to 2006 income tax returns. For these purposes, Form 990-T (on which UBIT is reported) is an income tax return but Form 990 is not. Thus, only those exempt organizations that file Form 990-T can obtain a refund.

To complete Form 8913, 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 a formula to calculate their refunds.

Business taxpayers and tax-exempt organizations can use the formula even if they only operated for part of the 41-month period. However, if the business or tax-exempt organization was not in business or operating April 2006 through September 2006, it cannot use the formula and must request a refund based on the exact amount of excise tax paid during the period March 2003 through July 2006.

For more information, please see Telephone Tax Refunds: Questions and Answers for Businesses and Tax-Exempt Organizations.

The Exempt Organization Advisory is a general summary of the law and is not intended as specific legal advice for any organization.

Internal Revenue Service - Circular 230 Disclosure: As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

Questions and comments about the Exempt Organizations Advisory are always welcome and should be sent to bstone@steptoe.com.