Federal Excise Tax Refund Opportunity

The IRS doesn’t lose many battles, but they clearly have thrown in the towel on the subject of Federal Excise Taxes for telecom, at least in part. Corporations are eligible to receive huge refunds, including interest, for these taxes paid since March 1, 2003. But those refunds must be requested on your regular upcoming tax filings (it’s a one time chance!), and the requirements can be challenging to meet.

Situation Overview

The Federal Excise Tax was first imposed during the Spanish American War in 1898 as a “luxury tax” on all common carrier services, including transportation. The telecommunications definition that was later added specifically cites “time and distance” LD, which is no longer relevant. A series of recent lawsuits and appeals won by plaintiffs in Federal courts have resulted in the IRS declaring certain services no longer taxable. On May 26, 2006, the IRS declared the following services no longer taxable as of August 1, 2006:

• Long Distance
• Wireless with Bundled Long distance
• Bundled Local and Long Distance

To estimate the value of this refund to your business, the simplest measure is to think in terms of one full month of long distance service that you consume. For our clients, this could range from $5,000 to well over $500,000.

Getting the Refund

In order to be eligible to receive a credit or refund, the taxpayer has to take some affirmative steps, beginning with the identification of the amount of FET paid since March 1, 2003 — a daunting task for any company. All FET paid on long distance and “bundled” services needs to be identified. Accurate accountings will need to be available in the event an audit should occur.

Some of the complications and nuances that will be required to provide an accurate estimate of the refund due are shown below. Our staff, and our processes, will ensure that the requirements of IRS valid calculations are met.

• Refunds are limited to LD usage, including bundled services that include LD. Non-usage charges such as access, transport, infrastructure, regulatory or tax must be excluded from these calculations.
• Some services may not have been in effect for the entire applicable date range, either starting after the initial date, or ending before the deadline, or both.
• Some carriers ceased collections of this tax prior to the 7/31/2006 deadline, while a few have yet to stop and will require a billing dispute with the carrier to resolve--included as part of our project services.
• The refund is limited to invoice billing addresses within the US.
• If client has received any “Compensating Values” from either the IRS or the providers the refund will be reduced.
• While interest calculation standards have not yet been issued, these could represent a significant additional amount to any refund and may well require complex calculations.

Our FET Refund Service Offering

Advantage IQ will complete the following activities in support of your 2006 FET tax deduction

• Provide overall project management to identify and organize source data.
• Determine which accounts should be included in the calculations.
• Collect applicable invoices from client and/or providers. (Advantage IQ will make best efforts to obtain missing invoices from providers).
• Scan copies of tax summary pages from invoices into the FET analysis system.
• Capture pertinent information into the FET analysis system.
• Review potential Compensating Values provided by client.
• Validate applicability of each invoice.
• Provide client with taxation summary report.
• Provide client with taxation detail report linked to images scanned invoice pages.
• Upon completion of the project Advantage IQ, Inc. will review the project with the client and verify their ability to open the reports.

In the event of an IRS audit, Advantage will be available to answer questions pertaining to our methods and the accuracy of the data. In the event we are requested to meet in person with the IRS or client attorneys, additional charges will apply.