The Telephone Excise Tax Refund (TETR) is a one-time payment available on your 2006 federal income tax return. It is designed to refund previously collected long distance telephone taxes. Individuals, businesses and tax-exempt organizations are eligible to request it.

Individuals

Taxpayers have a choice: a standard refund amount between $30 and $60, based on the total number of exemptions claimed on their 2006 tax return, to eliminate the need to locate old phone bills; or they can locate those bills and use the actual amount.

• Choosing the standard refund amount? You’ll find an extra line on your tax returns for the refund.
• Find those old phone bills? You can figure the refund using the actual amount of tax paid. Fill out Form 8913, Credit for Federal Telephone Excise Tax Paid, and attach it to your return.
• Don't need to file a return? You can still request the refund. Use the new Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, to choose the standard amount. Attach Form 8913 to Form 1040EZ-T if you use the actual amount. Also, some companies offer free e-filing of Form 1040EZ-T.
• Filing Schedule C, E or F? You may be eligible to use the special formula for businesses if you have more than $25,000 in gross receipts.

Businesses and Tax-Exempt Organizations

Businesses and tax-exempts can dig through their old phone bills for the past 41 months to base their telephone tax refund on the actual amount of tax paid. Or they can review their bills for 2 months and use a special formula to figure the refund.

• Businesses must fill out Form 8913, Credit for Federal Telephone Excise Tax Paid, and attach it to the income tax return they normally file: Form 1120, Form 1120S, Form 1065 or Form 1041.
• Likewise, tax-exempts, including churches and charities, must fill out Form 8913 and attach it to Form 990-T.

Related Links

• Exempt Organizations - Frequently Asked Questions
• IR-2006-179, Businesses and Tax-Exempts Can Use Formula for Telephone Tax Refund
• IR-2006-137, IRS Announces Standard Amounts for Telephone Tax Refunds
• IR-2006-82, Government to Stop Collecting Long-Distance Telephone Tax
• Treasury Department News Release
• Notice 2006-50, Communications Excise Tax; Toll Telephone Service (PDF)
• Internal Revenue Bulletin 2006-25, June 19, 2006 (PDF)

What is the telephone tax refund?

The telephone tax refund is a one-time payment available on your 2006 federal income tax return, designed to refund previously collected federal excise taxes on long-distance or bundled services. It is available to anyone who paid such taxes on landline, wireless, or Voice over Internet Protocol (VoIP) service.

Why is the government refunding these taxes?

Several recent federal court decisions have held that the tax does not apply to long-distance service as it is billed today. The IRS is following these decisions and refunding the portion of the tax charged on long-distance calls. The IRS is also refunding taxes collected on telephone service under plans that do not differentiate between long distance and local calls including bundled service.

The telephone tax continues to apply to local-only service, and the IRS is not refunding taxes charged on local-only service.

The IRS will refund to you the taxes on long-distance or bundled service billed to you for the period after Feb. 28, 2003 and before Aug. 1, 2006. Taxpayers should request this refund when they file their 2006 tax returns.

Who is eligible to request the telephone tax refund?

In general, any individual, business or nonprofit organization that paid the tax for long distance or bundled service billed after Feb. 28, 2003 and before Aug. 1, 2006 is eligible to request the refund.

What is a refund-eligible bundled service?

Bundled service is local and long distance service provided under a single plan that does not state the charge for the local telephone service separately from other services. Bundled service plans include, for example, Voice over Internet Protocol (VoIP) service, and landline and wireless (cellular) service plans that provide both local and long distance service for either a flat monthly fee or a charge that varies only with the elapsed transmission time for which the service is used. Telecommunications companies provide bundled service for both landlines and wireless (cellular) service. If VoIP service provides both local and long distance service and the charges are not separately stated, such service is bundled service.

The method of sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled.

How do I get the telephone tax refund?

In general, anyone who paid the telephone tax on their long-distance or bundled service may be eligible to request the refund on their 2006 federal income tax return. This includes individuals, businesses and nonprofit organizations. The 2006 return is usually filed during 2007.

The IRS is making it easier for individual taxpayers by offering a standard refund amount between $30 and $60, so that these taxpayers don’t need to gather old phone bills. Taxpayers who choose the standard amount will only need to fill out one line on their tax returns. The standard amount is based on actual telephone usage data and the amount applicable to a family or other household reflects the taxes paid on long-distance or bundled phone service by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refunds and avoid gathering 41 months of old phone records.

What is the standard amount?

Individual taxpayers can take a standard amount from $30 to $60 based on the number of exemptions claimed on their tax return.  For those claiming:

• one exemption, the standard refund amount is $30
• two exemptions, the standard refund amount is $40
• three exemptions, the standard refund amount is $50
• four exemptions or more, the standard refund amount is $60

The instructions to the 2006 1040 tax forms will provide more information on how to determine the correct number of exemptions. (Because the term “exemptions” does not appear on Form 1040EZ, people who fill out this form should follow the instructions carefully.)

The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects taxes paid on long-distance or bundled service by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

How did the government come up with the standard amounts?

Telephone industry and IRS data were used to determine the refundable standard amounts. Telephone industry data showed that spending on long distance correlated directly with the number of persons in a household; therefore, a scaled refund structure was selected based on the number of exemptions claimed on the tax return.

What forms do I file to request the refund?

For many individual taxpayers who want to take the standard amount, there are no additional forms to file, and you only need to fill out one additional line on your regular income-tax return.

Individuals choosing the standard amount can simply fill in the amount on Form 1040, 1040A, 1040NR or 1040EZ. People who don’t need to file a return can use a new, simple form (Form 1040EZ-T) to choose the standard amount.

Taking the standard amount is optional. It is also the easiest way to get a refund. A married couple filing a joint return with two dependant children, for example, will be eligible for the maximum standard amount of $60.

Individuals who decide not to use the standard amount must figure their refund using the actual amount of tax they paid. To choose this option, taxpayers can fill out Form 8913 and attach it to their regular income-tax returns.

The standard amount is not available to businesses and nonprofits. Accordingly, businesses and nonprofits must fill out Form 8913 and base their refund requests on the actual amount of tax they paid. Businesses should attach this form to the income-tax returns they normally file — Form 1120, 1120S, 1065 or 1041. Nonprofits, including churches, charities and other tax-exempt organizations, should attach it to Form 990-T.

Alternatively, businesses and tax-exempts can review their bills for 2 months and use a special formula to figure the refund. For more information, see below.

Can I e-file to get this refund?

Yes. Virtually anyone who files an individual return qualifies for electronic filing, and the telephone tax refund is one of many tax benefits that can be reported on an e-filed return. Whether you file electronically or on paper, you can get your refund even faster by having it deposited directly into your checking or savings account.

I don’t have to file an income-tax return. How do I get the telephone tax refund?

For those people who do not otherwise have to file a tax return, there is a new simple form (1040EZ-T) that can be used to get this refund. Beginning in mid-January, this form can also be filed electronically for free via the Free File link this Web site.

If you choose the standard amount, all you need to do is fill out this simple form using the number of exemptions you are eligible to claim. For example, a married couple with two dependent children (for a total of four exemptions) will be eligible for the maximum standard amount of $60.

If you decide not to use the standard amount, you must figure your refund using the actual amount of tax paid. To choose this option, you must fill out an additional form (Form 8913) and attach it to Form 1040EZ-T.

Do Internet long-distance plans qualify for the refund?

Yes. If you paid the federal excise tax on your long-distance Internet plan, you can request the telephone tax refund. Internet long distance plans include broadband VoIP long-distance plans.

Why do I only get a refund for the past few years?

Under the applicable statute of limitations in the Internal Revenue Code, the IRS is generally not permitted to refund taxes that were paid more than three years before the date on which the refund program was announced. Accordingly, the telephone tax refund is available for long-distance taxes billed after Feb. 28, 2003, and before Aug. 1, 2006.

How do I determine how much federal excise tax I have paid on my long-distance service?

Taxpayers who choose to base their refund requests on the actual amount of tax paid should review their phone bills since Feb. 28, 2003. Taxes paid on local-only service are not eligible for the refund. In general, federal excise taxes paid on other types of service qualify. Federal access charges and state or local taxes and charges are not eligible for the refund.

The standard amount is based on actual telephone usage data, and the amount applicable to a family or other household reflects the phone tax on long-distance or bundled service paid by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

What if I don’t know whether I paid this tax?

Your phone service providers were required to include the federal excise tax on your monthly telephone bills. So if you had long distance or bundled service and received a monthly bill from your phone service provider, and you paid the bill including the tax amounts, then you should be eligible to request the refund. 

Where do I go for more information?

Instructions for requesting this refund will be included with your tax forms and on this Web site. Therefore, most people will not need to call the IRS. If you decide to figure the actual amount of the refund rather than the standard refund, you will need copies of your phone bills. Telephone companies have already provided their customers with copies of their bills during the original billing periods and may charge for replacement copies of past bills, if they are available. Before contacting your telephone company, should you need to obtain replacement copies of past bills, you may want to check the company’s Web site.

What do I have to do now?

In most cases, nothing. Taxpayers will request this refund on their 2006 return. Accordingly, the IRS will begin accepting refund requests in January 2007.

The only decision you have to make is whether to use the standard amount or to request the amount of tax you actually paid. To take the standard amount, you don’t need to do anything now. You can figure it when you fill out your 2006 return.

If you are considering using the actual expense method, you may want to start gathering your phone bills since Feb. 28, 2003. As with any other line item on your return, starting early and keeping good records always makes the tax-preparation process easier.

Will the IRS pay interest on the refunded telephone tax?

Yes. The standard amount includes interest For those basing their request on the actual amount of tax paid, the instructions for Form 8913 explain how to figure the interest amount.

How do I decide if it’s better for me to use the actual or take the standard amount?

You can use whichever method gives you the larger refund. The standard amount is based on actual telephone usage data and the amount applicable to a family or other household reflects the tax on long-distance or bundled service paid by similarly sized families or households. Using this amount may be the easiest way for taxpayers to get their refund and avoid gathering 41 months of old phone records.

Do I have to itemize to request this refund?

No. Because this is a refund of taxes previously paid, it does not matter whether you itemize or take the standard deduction.

Will I get a separate check?

No. The telephone tax refund will be treated as a one-time payment on your 2006 return. Accordingly, it will reduce the amount you owe on your return or increase the amount of your refund.
 

What is the total amount the government expects to refund?

Economists at the U.S. Department of the Treasury estimate the amount refunded to individuals will be about $10 billion.

Q.  Are businesses required to dig through all their old phone records to figure their telephone tax refund?

No. The IRS has developed a formula that most businesses and tax-exempt organizations can use to figure their refund. To use the formula, eligible taxpayers need only review their phone bills for 2 months, instead of all 41 months included in the refund period. In addition, eligible taxpayers need to know their total telephone expenses for the 41-month period and the number of employees reported on their federal withholding tax return (Form 941) for the second quarter of 2006.

The formula is an alternative to basing a refund request on the actual amount of tax paid. All taxpayers have the option of requesting a refund using the actual amount of tax paid.

Whether they use the formula or actual taxes paid, businesses and tax-exempt organizations must use Form 8913, Credit for Federal Telephone Excise Tax Paid, to request the refund. Businesses attach this form to their regular income tax return for 2006. Tax-exempt organizations attach it to Form 990-T.         

Q.  Who can use the formula?

In general, businesses and tax-exempt organizations that were operating at any time during the period from March 1, 2003, through July 31, 2006, and continued to incur phone expenses from April 2006 through September 2006, may use the formula. This includes corporations, S corporations, partnerships, trusts and estates. (Trusts and estates are treated as businesses in applying the formula.) Nonprofit tax-exempt organizations, including churches and charities, can also use the formula.

In addition, individual owners of rental property and self-employed people, including independent contractors, sole proprietors and farmers, can use the formula, but only if they report gross rental and business income totaling more than $25,000 on their 2006 federal income tax returns. This is the amount shown as:

• Gross income on Schedule C, Line 7,
  
  
• Gross receipts on Schedule C-EZ, Line 1,
  
  
• Rents received on Schedule E, Line 3, and
  
  
• Gross income on Line 11, Schedule F.

Individuals with more than one activity who fill out multiple business or rental schedules should add together all gross rental and business income amounts shown on these schedules. Similarly, married couples filing joint returns should also combine their gross rental and business income amounts from these schedules.

Q. How does the formula work?

To use the formula, businesses and tax-exempt organizations follow these steps:

1. Take the April 2006 phone bill (this is the bill with an April 2006 statement date) and divide the total federal telephone excise tax by the total phone bill (including federal telephone excise taxes) to arrive at the percentage of the bill attributable to federal telephone excise tax. If you have more than one type of service or service provider (land line, fax, cell, local, long distance, bundled, etc.), combine all bills dated in April before making this computation. For this purpose, there is no need to separate the taxes paid on long-distance service from those paid on local service. April is a representative month during which the government was still collecting the excise tax on long-distance service.
   
   
2. Take the September 2006 phone bill and divide the total federal excise tax by the total phone bill to arrive at the percentage of that bill attributable to federal telephone excise tax. The percentage should be lower because the government was only collecting the federal excise tax on local telephone service.
   
   
3. Subtract the September percentage from the April percentage to arrive at the percentage that represents the federal long-distance tax. This is the percentage businesses and tax-exempt organizations will use to figure their refunds (capped as discussed below).
   
   
4. Multiply the long-distance tax percentage by the total phone expenses shown on telephone bills dated after Feb. 28, 2003, and before Aug. 1, 2006. The refund is capped at 2 percent of phone expenses for small businesses (those with 250 or fewer employees) and one percent for large businesses (those with more than 250 employees). Use the number of employees for the pay period that included June 12, 2006. This is the number reported on Line 1, Form 941 (Employer’s Quarterly Federal Tax Return) for the second calendar quarter of 2006. Interest is added to the refund amount.

You can use the formula, even if your organization or business only operated for part of the 41-month period. However, if you were not in business or operating April through September 2006, you cannot use the formula. You can only request a refund for months for which the telephone tax was paid.

Q.  I qualify to use the formula, but my telephone expense records are not broken down by month. Is there an acceptable method for me to estimate my telephone expenses for the 41-month refund period?

Yes. You can base your estimate on the amounts you reported as business-related telephone expense on your returns for tax years 2003 through 2006. Prorate the telephone expense amount for a particular tax year if part of the year falls outside the refund period (2003 and 2006 for most taxpayers).

For example, like most taxpayers, Company Z files its income tax return on a calendar-year basis. It operated continuously during all four years and claimed telephone expense deductions totaling $12,000 in tax year 2003, $11,000 in 2004, $12,000 in 2005 and $12,000 in 2006. Z estimates the amount of its telephone expense that falls within the 41-month refund period as follows. In tax year 2003, only 10 months (March through December) fall within the telephone tax refund period. Z estimates its telephone expenses for this period by multiplying the $12,000 telephone expense deduction for 2003 by 10/12 (10 months divided by 12, the number of months in the tax year) to arrive at a figure of $10,000. There’s no need to prorate the deductions for 2004 and 2005, because these tax years fall entirely within the refund period. In 2006, 7 months (January through July) fall within the refund period. Accordingly, Z prorates its $12,000 telephone expense deduction by multiplying it by 7/12 to come up with an estimate of $7,000. Z adds together the prorated telephone expense for 2003 ($10,000), the actual telephone expense deduction for 2004 ($11,000), the actual deduction for 2005 ($12,000) and the prorated expense for 2006 ($7,000). The result, $40,000, is Z’s estimated telephone expense for the 41-month refund period.

Note:   For reporting purposes, telephone taxes need to be allocated by month or quarter. See Form 8913 and its instructions for more information. 

Q.  Which cap should a business or nonprofit use if its number of employees is 250 or less for part of 2006 and more than 250 for the rest of the year?

The cap is determined based on the number of employees for the pay period that includes June 12, 2006. This is the number reported on Line 1, Form 941 (Employer’s Quarterly Federal Tax Return). Thus, employment levels at other times of the year have no impact.

Q.  In applying the percentage cap, are part-time employees considered the same as full-time employees?

Yes. Use the number of employees reported on Line 1 of Form 941 for the second quarter of 2006. This figure includes both full-time and part-time employees. It does not include household employees, employees who received no pay, pensioners and active members of the armed forces.

Q.  Can you provide an example of how the formula works?

Company Z had ten employees during the pay period that included June 12, 2006, and, as noted above, had telephone expenses totaling $40,000 for the 41-month period beginning after Feb. 28, 2003 and ending before Aug. 1, 2006. Its phone bill, dated April 5, 2006, was $1,000 (including federal excise tax of $28), and its phone bill dated Sept. 5, 2006, was $1,100 (including excise tax of $16.50). Company Z’s telephone tax percentage for April is 2.8 percent ($28 divided by $1,000) and its telephone tax percentage for September is 1.5 percent ($16.50 divided by $1,100). Subtracting the September telephone tax percentage of 1.5 percent from the April percentage of 2.8 percent gives Company Z a long-distance tax percentage of 1.3 percent.

Company Z qualifies as a small business (one with 250 or fewer employees) and its telephone tax percentage falls below the two-percent cap that applies to small businesses. Multiplying 1.3 percent by Company Z’s total telephone expenses of $40,000 results in a telephone tax refund of $520. Interest is added to this amount.

If Company Z instead had more than 250 employees, and wanted to use the formula, its long-distance tax percentage would be capped at one percent and its refund using the formula would be $400 ($40,000 times one percent), plus interest.

Q.  Are there any additional forms required to use the formula?

No. All businesses and tax-exempt telephone tax refund requests must be made using Form 8913, Credit for Federal Telephone Excise Tax Paid. No additional forms are needed to use the formula.

Q.  Does an eligible entity have to use the formula?

No. The formula was designed to make it easier for businesses and tax-exempt organizations to request the telephone tax refund. It is optional. Any business or tax-exempt organization can choose to request a refund based on the actual amount of long-distance telephone excise tax billed after Feb. 28, 2003 and before Aug. 1, 2006.

Q.  Does the IRS plan to audit telephone tax refund requests?

The IRS expects to treat telephone tax refund requests in a manner similar to other tax returns. In general, the IRS accepts most federal tax returns as filed. However, to make sure taxpayers are following the law, the agency examines or audits some returns.

Returns are audited for a variety of reasons, and most are chosen by computerized screening.

Q.  In case of audit, what records should businesses and tax-exempt organizations keep?

If you use the formula, the IRS suggests that you keep the following records:

• Copies of your phone bills dated in April and September 2006,
  
  
• Your business-related telephone expenses for the 41 months for which the refund is available (March 2003 through July 2006), and
  
  
• The number of employees during the pay period that included June 12, 2006, as reported on Line 1, Form 941 (Employer’s Quarterly Federal Tax Return) for the second quarter of 2006.

If you base your refund request on the actual amount of your telephone tax, keep copies of your telephone bills for the 41-month period.

Either way, do not send these documents with your refund request — keep them for your records.

Q.  Are foreign businesses and tax-exempt organizations eligible to request the telephone tax refund?

Yes. Like other taxpayers, they are eligible to file if they paid federal long-distance taxes billed after Feb. 28, 2003, and before Aug. 1, 2006.

Q.  Can businesses and tax-exempt organizations figure their refunds using the actual amount of tax incurred for one year and use the formula for taxes incurred in another year?

No. Businesses and tax-exempt organizations can choose either method but not both.

Q.  If a taxpayer owns more than one business, does the taxpayer submit a separate refund request for each business?

In some cases, yes. It depends upon whether each business is considered a separate business for tax purposes.

Each business that has an employer identification number (EIN) with the IRS (for example, two corporations owned by the same taxpayer) is considered a separate business for tax purposes and can request a telephone tax refund.  Each separate business can choose to figure its refund using either the formula or the actual amount of tax paid. Individuals who operate more than one business as a sole proprietor are issued only one EIN. Thus, an individual can submit only one refund request.

Q.  Can the IRS use telephone tax refunds to offset tax debts?

Yes. Like other tax refunds, the telephone tax refund can be applied against other taxes owed by the taxpayer.

Q.  I am requesting the telephone tax refund on my 2006 business return, and I expect to receive my refund in 2007. Do I have to report it as income on my 2007 return?

Generally, yes. Normally, a business taxpayer can deduct the cost of telephone service, including related taxes. Thus, if you later receive a refund of those taxes, you normally must include it, along with any related interest, in your gross income in the year you receive it.

Further details on reporting these refunds will be included in IRS publications and tax instructions for 2007.

Q.  Why can't the telephone companies pull the information from their databases and provide it to businesses?

Many service providers lack easy access to records for the entire 41-month period. In general, they retain about six months of records on-line. In addition, many taxpayers have more than one service provider or have changed providers at least once in the past three years. Thus, the telephone companies cannot provide complete records for all of their customers.

The formula was created to save time and trouble for businesses and tax-exempts requesting refunds and help limit the volume of customer record requests to companies in the telecommunications industry. Those wishing to base their requests on actual taxes paid and who lack adequate records may, in some cases, be able to obtain records from their service provider. However, service providers are not precluded from charging customers for providing these records, and customers making these requests may face substantial delays in obtaining them.

Q.  Why can't the IRS figure the telephone tax refund and send it to each eligible business or tax-exempt organization?

The IRS does not have access to all of the information needed to figure these refunds.

Q.  How will the IRS provide the forms and other information needed by businesses?

Details on the telephone tax refund will be included in all 2006 tax return materials and on this Web site.

Q.  If a business or tax-exempt organization does not have 41 months of documentation, what are its options?

Businesses and tax-exempt organizations need their phone bills dated in April 2006 and September 2006 to figure their long-distance tax percentage for their refund requests. If a business or tax-exempt organization has its expenses broken out by month, all it has to do is add them together in the groups shown on Form 8913, Credit for Federal Telephone Excise Tax Paid. For example, it can add its March, April and May 2003 expenses together to obtain the total amount of telephone expenses it had for this time period.

If it does not have its expenses by month, it can estimate the amount for each time period on the Form 8913 by using the average monthly phone expense for each year included in the 41-month refund period.

For example, it divides its total telephone expense for 2003 by 12 to get a monthly average. It uses this amount to estimate the amount of telephone expense it incurred for each of the time periods in 2003 shown in column D of Form 8913. It can repeat this step for each subsequent year.