IRS Abandons Telephone Excise Tax on Long-Distance Calls

May 25, 2006

In recent years the IRS has been tangled in lawsuits over whether the federal telephone excise tax should apply to long-distance calls, as well as local phone service.

Originally, the 1898 federal phone tax applied to all phone usage. But in 1965 the tax was revised so that long-distance calls could only be taxed if the duration of the call and the distance between callers was factored into the the price.

Today, many phone plans today charge only by the minute, and don’t charge based on distance. As a result, most long-distance calls should be tax-exempt. But in recent years the IRS has routinely collected excise taxes on tax-exempt long-distance calls, sparking major lawsuits by Ford Motor Co. and others.

In wake of a recent unfavorable appeals court decision, the U.S. Treasury announced today the IRS is abandoning its attempts to collect the tax on long-distance calls. It plans to issue full refunds to taxpayers in 2007 who have improperly paid:

WASHINGTON, DC – The U.S. Treasury Department today announced it is conceding the legal dispute over the federal excise tax on long-distance telephone service. The Department of Justice will no longer pursue litigation and the Internal Revenue Service (IRS) will issue refunds of tax on long-distance service for the past three years. Taxpayers will be able to apply for refunds on their 2006 tax forms, to be filed in 2007.

Treasury Secretary John Snow states, “Today is a good day for American taxpayers; it marks the beginning of the end of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history.

“The Federal Appeals courts have spoken across the board. It’s time to `disconnect’ this tax and put it on the permanent `do not call’ list.

“In addition to ending the litigation, I would like to call on Congress to terminate the remainder of this antique tax by repealing the excise tax on local service as well.”

Read the full Treasury release here.

(Link via Roth & Co. Tax Updates.)


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