Although the deadline for seeking refunds of the Federal Excise Tax on communications services expired March 15, 2010 (or September 15, 2010 if extensions to file the 2006 return were obtained), the IRS continues to process many FET refunds.
The rules followed by the IRS in reviewing refund claims have changed somewhat, and delays in processing have grown. Using the Taxpayers Advocate Service can ameliorate the delays by getting action from the first level of IRS review.
Although the IRS is finding new ways to disallow the refunds which are not always consistent with the law or very credible, disallowance of refunds can be and have been successfully challenged. Specifically, there are two separate ways to challenge disallowances: either an appeal using the internal IRS administrative appeals procedure or by suit in federal court or the court of federal claims.
Our firm has found that using the internal IRS appeals process is the preferable approach. While the internal appeals process is a slow moving process and the skill level of Appeals Officers often varies, many appeals succeed in recovering the entire refund of the taxes paid or a significant portion.
The interest payable on the amount of the taxes paid is a strong incentive to appeal a full or partial disallowance, depending on the size of the refund disallowed. Specifically, interest accrues until 30 days prior to the issuance of the refund. Therefore, while the appeal is pending, interest continues to grow.
The IRS itself calculates the interest, even though it requires the interest to be calculated on IRS Form 8913, which is required to be filed when the refund is filed initially. Moreover, the interest calculated on the Form 8913 covers only the period from March 2003 to July 2006. Refunds granted today therefore have interest applied for the 5 years that have passed since July 2006, adding significant dollars to the ultimate refund when issued.
There is a two year period during which a disallowance can be appealed. While our clients have not had to resort to a court filing, if the refund is large enough, an appeal is worth considering because the interest will continue to accrue during the two period, up until the refund is allowed by a court decision.
Anyone that has had a refund disallowed less than two years ago should consider seeking guidance from an attorney skilled and experienced with the facts and laws governing the refund process.
Clients or others with questions regarding this advisory should contact Charles H. Helein, 703-714-1301, chh@commlawgroup.com.
