Federal Excise Tax (FET)

Frequently Asked Questions (FAQ)

Q. What is the FET refund/credit?
A. Pursuant to a recent court order, the IRS has agreed to stop collecting this Federal Excise Tax on long distance service, which dates back to the Spanish/American War. They have also agreed to refund all taxes paid on long distance service from March 2003, through July 2006. Beginning in August 2006, your long distance carrier should not be charging Federal Excise Tax for long distance related calls.

Q. What’s in it for me/my company?
A. You can expect a refund/credit equal to approximately one month’s expense in long distance and bundled services, e.g., wireless/cellular, local and long distance, and VoIP.

Q. Is this a credit that can be taken year after year?
A. No, the IRS is offering a one time refund/credit which will be deducted from a company’s 2006 tax return.

Q. Will my refund/credit be entered as a deduction or an actual credit off my taxes?
A. The IRS has stated that the full amount of overpayment will be a tax credit and that 2006 income tax forms will include a line for requesting the overpayment amount.

Q. Who is eligible for a refund?
A. The IRS website states that anyone who paid long-distance tax on service billed after Feb. 28, 2003 and before Aug. 1, 2006 are eligible for a refund.

Q. Does Federal Excise Tax affect Non-Profits, Not-for-Profits, or Credit Unions?
A. These groups can apply for the FET Refund when they complete their tax returns, Form 990.

Q. What is needed for The Michael Group to help me obtain this credit amount?
A.

Billing information for the months of March 2003 through July 2006.

Contact information of the carrier’s sales representative

Letter of Authorization

We prefer monthly electronic billing but can work with the paper bills.

Your assistance may be needed to get the information from the carrier.

Some carriers are charging a fee for providing billing information.

Q. When should we move forward on this?
A. The sooner the better. More time is necessary if we have to obtain information from the carriers, and the closer it gets to March, when most companies taxes are due March 15, everyone may get overloaded, including the vendors/carriers.

Q. How much should a company’s expenses be in order to take advantage of this opportunity?
A. The Michael Group is looking for companies billing $4,000 per month and up with each carrier and type of service.

Q. How much do you charge?
A. This depends on a number of factors, e.g., number of carriers and amount billing per month. For smaller spends per month, it comes out to about 25%, as the monthly spend increases, the fee comes down to around 8% of what the client gets back.

Q. Doesn’t it cost me money to hire The Michael Group to calculate my refund amount?
A. Even by paying The Michael Group’s fee, you will come out ahead. The difference between a 1% refund and a 3% refund more than covers The Michael Group’s fee. You have nothing to lose by hiring us to calculate your refund and provide the documentation you need. You will come out ahead by recovering the full amount you are owed by the IRS, plus we guarantee your claim will be the same as or more than our fee.

Q. Our tax department says that this isn’t worth going after.
A. This could be the case, but until we see what your company is spending on a per carrier and monthly basis, and in the area or long distance and cellular, we can’t agree. We have seen cases that the tax department wasn’t well informed and the opposite was the case.

Q. Our cellular bills don’t have long distance charges included.
A. Actually, they probably do. This is called bundling and if you have phones that have free long distance and roaming as a part of their plans, then you can get money back from the IRS.

Q. How long will it take to get the reports back to us?
A. Around 30-45 days from the time we have all the needed information. Sometimes we may have to get information from the carrier, and if this is the case, we will keep you informed of what we are doing so that you can update your management of the progress.

Q. Will this credit/refund prompt an audit?
A. It should not, since everyone will be taking a deduction on their tax return. As always, you need to have your documentation in order to prove the numbers.

Q. Will you be there to support us if we get audited in this area?
A. Yes, we will. We are prepared to support our numbers. This is also why we are providing you with details of how we came up with these amounts.

Q. Why don’t I do this myself?
A. Because you can’t just take the FET amount shown on the bills. You can only use the calculated amount from the actual usage. There are items on your bill that may be charged an FET that are not usage based and the non-usage based items can’t be a part of how the total is calculated even if FET happened to be charge to them.

Q. Why not let my CPA do this?
A. You could, if your CPA is willing, but from our discussions with CPAs, they have stated that they really do not have the expertise to go after the full 3% amount and if audited, they would prefer having the information and documentation provided by The Michael Group.

Q. Why is it important to use an expert like TMG?
A. This is our field of expertise - auditing and analyzing telephone bills. We provide you with documentation of invoices, amounts, a spreadsheet, and much more to prove the numbers.

Q. Why not use someone else for a lower price?
A. You could - the question is do you feel comfortable with the backup information they will provide if you are audited? The Michael Group provides spreadsheets, copies of invoices, how we calculated with our numbers and we provide it on a CD; we will also store this information for 5-7 years. If you are audited by the IRS, we will also support your case if you need us.

Q. What is the difference between calculating the exact amount of Federal Excise Tax refund I am owed, and using the IRS formula to estimate my refund?
A. You are allowed to claim a refund on the full 3% Federal Excise Tax that you paid, if you calculate the amount using your past telephone bills. If you use the IRS formula to estimate the refund, you will only be allowed to take a maximum of 1 percent if you have more than 250 employees; or a maximum of 2 percent if you have less than 250 employees.

Q. How do I know which method to use?
A. The best method for any business with more than 250 employees is to calculate the exact amount of FET paid, and obtain the full 3% refund. If you use the IRS formula to estimate your refund, you could leave a substantial sum of money on the table!

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