The Internal Revenue Service Aug. 31 announced standard amounts millions of individual taxpayers may elect to claim under a federal excise tax refund scheme announced in May.

The amounts range from $30 to $60 per individual taxpayer and are based on the number of exemptions claimed by the taxpayer.

Former Treasury Secretary John Snow announced May 25 the government would refund about $13 billion in federal excise taxes collected on long-distance telephone services billed to customers between 2003 and 2006; five U.S. circuit court decisions had ruled before Snow's announcement that current long-distance telephone services are not based on a telephone call's time and distance and thus are not subject to a telephone excise tax defined and imposed by Internal Revenue Code Sections 4251 and 4252 (102 DTR GG-1, 05/26/06 ).

Individuals paying the excise tax are eligible for a refund based on invoices for telephone services after Feb. 28, 2003, and before Aug. 1, 2006, according to Notice 2006-50, which IRS released May 25.

At least five legal disputes have been launched in federal courts regarding the government's refund scheme (135 DTR G-5, 07/14/06 ).

Amount Based on Exemptions

Generally, any entity paying the excise tax is eligible for a refund. The standard amounts announced in an Aug. 31 IRS news release (IR-2006-137) are based on the number of exemptions taxpayers claim on income tax forms for tax year 2006 and are available for use by individuals only.

The standard amounts are $30 for an individual filing a return with one exemption, $40 for two exemptions, $50 for three exemptions, and $60 for four or more exemptions, IRS said in the news release.

IRS is preparing a special tax form, Form 1040EZ-T, for those paying the excise tax but not obligated to file an income tax form.

"The easiest way for eligible taxpayers to get their money back is to use the standard amounts. These amounts save taxpayers from locating 41 months of old phone bills and analyzing these bills to determine the taxes paid," IRS Commissioner Mark Everson said in the news release.

"We believe the standard amounts are both reasonable and fair," Everson said.

IRS said the standard amounts were calculated using actual telephone usage data, and the standard amount applicable to a family or other household reflected the long-distance telephone excise tax paid by similarly sized families or households.

Telephone Firms Applaud Decision

Taxpayers may elect not to claim the standard amounts allowed by IRS under its Aug. 31 ruling and instead calculate the amount of tax paid.

If taxpayers elect to calculate the tax instead of using the standard amounts proposed by IRS, they may also include interest on the refunded amount but must declare the interest as income for the taxable year in which the interest is received or accrued, the notice said.

Telephone companies and industry groups Aug. 31 applauded IRS's standard amount proposal. "In setting reasonable reimbursement amounts, the Internal Revenue Service has made it easy for consumers to collect their refund of the federal excise tax," U.S. Telecom Association President and Chief Executive Officer Walter McCormick said in an Aug. 31 statement.

"We applaud the IRS for their hard work and effort to provide our residential customers with a simple, fair and equitable refund of previously paid federal excise tax," ATT Inc. vice president Larry Ruzicka said in an Aug. 31 statement.

BellSouth Corp. spokesman Bill McCloskey told BNA Aug. 31 IRS was "trying to be reasonable" in calculating the standards. While he said it would be difficult to calculate the actual telephone usage of claimed exemptions--whether they be infants, teenagers, or business sole proprietors--he added IRS was trying to make claiming a refund "as simple as possible."

Business Customers

Businesses, most of which spend substantially more on long distance telephone services than individuals, also qualify for refunds and must base their refunds on the actual amount of tax paid. In its Aug. 31 news release, IRS said it is looking for ways to make the refund process easier for these taxpayers as well.

"The IRS is considering an estimation method [that] businesses and nonprofits may use for figuring the tax paid," IRS said.

IRS's announcement, meantime, will likely not change the legal disputes concerning the refund scheme, Foley & Lardner LLP partner Michael Bowen told BNA Aug. 31.

Bowen, who represents plaintiff Neiland Cohen in a case filed with the U.S. District Court for the Eastern District of Wisconsin, said the extant issues of his case's complaint remain unchanged: that the refunds should include excise taxes paid beginning in at least July 1, 2002, and that the method of refunding amounts to taxpayers is not equitable.

BNA Daily Tax Report, September 1, 2006

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After working for you about six months, Tom quit and moved to another part of the country without leaving a forwarding address. Some time later, you notice that several of the last paychecks you gave him have never been cashed. What to do? Alternatively, suppose Tom's last paycheck was mailed to him at his last-known address, but today the U.S. Postal Service returns the check in an envelope stamped "Addressee Unknown." What should you do?

Generally, Federal law does not address the question. But, one conclusion on which every state agrees is that the employer is not entitled to keep the unclaimed wages as though they are some kind of windfall.

The first step for the employer is to recognize that the method of payment was by bank check, and that under state negotiable instrument laws generally, a bank check becomes "stale" after six months. But this relates only to the METHOD of payment. The value represented by the check continues to be the property of Tom, your former employee. The only obstacle to Tom's possession of the wages is his apparent disappearance.

The second step is to understand that unclaimed wages are a form of abandoned property that may become the property of the state if not claimed by the owner within a certain period of time. All states and the District of Columbia have laws defining the approved ways to dispose of all forms of abandoned property. These statutory directives are called "escheat" laws.

Employers holding unclaimed wages must remit the funds to the state and report certain information, before a particular annual date designated by the particular state. Generally, the annual reports must provide the following information: employee's name, last known address, description of the abandoned property ("wages"), the date the wages became payable, the dollar amount involved, and the date of the last transaction with the employee. Employers also must make a reasonable effort to contact the employee to prevent unclaimed wages from becoming abandoned.

The states vary widely on the length of time that must elapse before unclaimed wages are presumed abandoned. Many states require only one year, but some require 5 or more years. When unclaimed wages are deemed “abandoned” by the particular state, the employer may cease reporting them annually.

ADP Tax Research Newsletter, August, 2006

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The Internal Revenue Service reminds taxpayers to become familiar with the tax law before deducting car- and truck-related business expenses. Overstated adjustments, deductions, exemptions and credits of all types account for more than $30 billion in unpaid taxes annually, according to the IRS. In an effort to educate taxpayers regarding their obligation to file accurate tax returns, this fact sheet, the fifth in a series, explains the rules for deducting car and truck expenses.

Deductible Car and Truck Expenses

Ordinarily, expenses related to use of a car, van, pickup or panel truck for business can be deducted as transportation expenses. Use of larger vehicles, such as tractor-trailers, is treated differently and is not part of this discussion. In order to claim a deduction for business use of a car or truck, a taxpayer must have ordinary and necessary costs related to one or more of the following:

• Traveling from one work location to another within the taxpayer's tax home area. (Generally, the tax home is the entire city or general area where the taxpayer's main place of business is located, regardless of where he or she resides.)

• Visiting customers.

• Attending a business meeting away from the regular workplace.

• Getting from home to a temporary workplace when the taxpayer has one or more regular places of work. (These temporary workplaces can be either within or outside taxpayer's tax home area.)

Expenses related to travel away from home overnight are travel expenses. These expenses are discussed in Chapter One of Publication 463, "Travel, Entertainment, Gift, and Car Expenses." However, if a taxpayer uses a car while traveling away from home overnight on business, the rules for claiming car or truck expenses are the same as stated above.

It is important to note that costs related to travel between a taxpayer's home and regular place of work are commuting expenses and are not deductible.

Taxpayers can choose to use either the standard mileage rate or actual expenses to compute their allowable business deduction. They may want to figure the deduction using both methods to see which provides a larger deduction.

Standard Mileage Rate Method

The standard mileage rate may be used to figure the deductible costs of a vehicle that is owned or leased. If a taxpayer wishes to use the standard mileage rate for a leased vehicle, it must be used for the entire lease period. In other words, a taxpayer must use the standard mileage rate for the first year a vehicle is available for business use in order to use the standard mileage rate in subsequent years.

The standard mileage rate is adjusted annually by the IRS to reflect changes in the cost of operating a vehicle. In some situations it is adjusted during the year. The 2006 standard mileage rate of 44.5 cents per mile, as well as rates for previous periods, can be found at http://www.irs.gov/taxpros/article/0,,id=156624,00.html 

The standard mileage rate is used in place of actual expenses. Taxpayers who choose the standard mileage rate may not deduct actual expenses, such as depreciation, lease payments, maintenance and repairs, gasoline (including gasoline taxes), oil, insurance or vehicle registration fees. Business-related parking fees and tolls may be deducted in addition to the standard mileage rate. Fees for parking at a taxpayer's main place of business or tolls related to commuting to and from that main place of business are personal expenses which are not deductible.

The standard mileage rate cannot be used if the taxpayer:

• Uses the car for hire (such as a taxi).

• Uses five or more cars at the same time (as in fleet operations).

• Claims depreciation or a section 179 deduction (Publication 463, Chapter 4).

• Is a rural mail carrier who receives a qualified reimbursement (Publication 463, Chapter 4).

Actual Expenses Method

Actual car or truck expenses include:

• Depreciation

• Lease payments

• Registration fees

• Licenses

• Gas

• Insurance

• Repairs

• Oil

• Garage rent

• Tires

• Tolls

• Parking Fees

These and other expenses are discussed in detail beginning on page 16 of Publication 463. If business use of the vehicle is less than 100 percent, expenses must be allocated between business and personal use. Only the business use percentage of each expense is deductible.

For example, if, based on records maintained by a taxpayer, total actual vehicle expenses for a given year are $2,500 and the vehicle is used 75 percent for business, the allowable deduction using the actual expense method is $1,875 ($2,500 x 75 percent).

Recordkeeping

It is important to keep complete records to substantiate items reported on a tax return. In the case of car and truck expenses, the types of records required depend on whether the taxpayer claims the standard mileage rate or actual expenses.

To claim the standard mileage rate, appropriate records would include documentation identifying the vehicle and proving ownership or a lease and a daily log showing miles traveled, destination and business purpose.

For actual expenses, a mileage log helps establish business use percentage. Taxpayers should also retain receipts, invoices and other documentation to show cost and establish the identity of the vehicle for which the expense was incurred. For depreciation purposes they need to show the original cost of the vehicle and any improvements as well as the date it was placed in service.

BNA Daily Tax Report, October 26, 2006

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As a general rule, no business deduction is allowed for club dues. A club is defined where its primary purpose is to conduct pleasure, recreation, and entertainment for members or their guests or to provide them with access to entertainment facilities. The following are considered clubs: business club, social club, luncheon club, country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals and entertainment activities. However, the following are not considered clubs under the disallowance rule: business leagues, labor union, trade associations, chambers of commerce, boards of trade, real estate boards, professional organizations (such as bar association, medical associations, MA Society of CPA's), and civil or public service organizations (such as Kiwanis, Lions, Rotary, Civitan and similar organizations).

The key word to this section is the distinction of "entertainment” activities. If the principal purpose of the organization is to conduct "entertainment” activities, no deduction is allowed for dues paid. On the contrary, dues are deductible business expenses if the principal purpose of the organization is to conduct business activities.

(IRC §274(a) (3) explains the definition and the deductibility of club dues).

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November 2006
	Short Term	Mid Term	Long Term
Annual	4.89%	4.69%	4.90%
Semi annual	4.83%	4.64%	4.84%
Quarterly	4.80%	4.61%	4.81%
Monthly	4.78%	4.60%	4.79%
Adjusted AFR for Original Issue Discount (Code Sec. 1288(b))	3.40%	3.57%	4.15%
Code Sec. 382 Adjusted Federal Long Term Rate			4.15%
Long Term Tax exempt rate			4.41%
Low income Housing Credit (Code Sec. 42(b)(2))
70% present value			8.12%
30% present value			3.48%
Valuation Tables (Code Sec. 7520)			5.60%
Deemed Rate of Return for Transfers to Pooled Income Funds (Code Sec. 642(c)(5))			3.80%

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