Minor Memos

Minor Memos

March 03, 2006 | By Keith Martin in Washington, DC

Two class action suits have been filed in the US courts to force the IRS to refund the 3% excise tax that the federal government collects on long-distance telephone calls. The government has lost a string of court cases filed by individual companies to get back the taxes they paid. The problem is the tax statute is out of date because it requires the tax be paid on calls that are charged on the basis of time or distance. Phone companies no longer charge for calls on that basis . ...First Energy Corporation, a holding company for utilities in Ohio, Pennsylvania and New Jersey, is still fighting a class action lawsuit by shareholders who believe the company overstated the amount of its dividends in 1986. Distributions that a corporation makes to shareholders are treated as dividends to the extent the corporation has “earnings and profits.” The shareholders claim that First Energy made a $1.5 billion mistake over several years in calculating its earnings and profits and are looking for damages for the federal and state taxes they say they overpaid as a result, plus attorney fees. The suit was originally brought in state court and then moved — at the request of the utility — to a federal district court that dismissed the lawsuit after deciding the shareholders should ask the IRS directly for refunds of the taxes they overpaid, but acknowledged they were out of luck because refund claims must usually be filed within three years of the tax year in question. A US appeals court reinstated the suit in late January, but sent it back to state court .... Antarctica is not a foreign country, the US Tax Court ruled in late January. The decision is important to Americans working at scientific bases near the south pole. They cannot take advantage of a so-called section 911 exclusion in the US tax code that lets Americans working overseas exclude part of their “foreign earned income” each year from US income taxes. The court said Americans working in Antarctica do not earn any of their income in a “foreign country” defined as a “territory under the sovereignty of a government other than that of the United States.” Antarctica is controlled by an international treaty among countries with an interest in the region. The US Tax Court reached the same conclusion in an earlier case in 1968. The latest case is Arnett v. Commissioner.