The IRS lost a tax case earlier this year which has eliminated the FET on long distance charges as of 8/1/06 and has allowed for refunds of the tax that was paid from 3/1/03 through 7/31/06. (See IRS Notice 2006-50)

Personal Impact.
The IRS will refund to individual taxpayers the following amounts as a credit on the 2006 federal tax return as explained in IRS document IR-2006-137

One exemption - $30
Two exemptions - $40
Three exemptions - $50
Four or more exemptions - $60
If you think you may have paid more than the respective standard amounts above, you are entitled to claim for the actual tax paid.

Business Impact.
Businesses are similarly allowed to claim a credit on their 2006 tax returns for the actual amount of overpaid FET on long distance charges. They may calculate the actual overpayment by extracting the FET paid over the 41 months from 3/03 through 7/06 or may use a simplified process explained below: Take the percentage of the FET paid on the September, 2006 telecom bill and deduct it from the percentage of the FET paid on the April, 2006 dated telecom bill. Apply the difference in the two percentages to the 41 telephone bills to calculate the refund. This percentage is capped at two percent for businesses with 250 or fewer employees and one percent for businesses with over 250 employees.

Our client, a medium-sized trucking company, made multiple payments to its insurers--some for coverage and some claim-related. There was a high volume of payments to one insurance company and we decided to review payments to this vendor for insurance deductibles.

We gathered all the invoices and put all the claims onto a spreadsheet—all claims with a $10,000 deductible and other claims with a $2,500 deductible. We found that the client was charged a $10,000 deductible twice for the same claim. This happened because the insurance company billed for a $10,000 deductible under its pollution policy and then also billed under the $2,500 deductible policy several months later. We then asked the vendor to itemize all the charges they had paid out in claims. There were 60 pages of claim payments. We reviewed these payments and found that the client had overpaid a deductible on one claim and had also made a direct payment of $960 and failed to request a reimbursement from the insurance company. The total credit from the insurance company amounted to $12,380. P.S. Insight. It can be worthwhile to review major vendor account activity from time to time.

In April of 2002 CSX Corp. won a case against the IRS (CSX vs. IRS 52 Fed. CL. 208) when the court determined that most termination payments aren’t subject to FICA taxes if they are made as part of a planned workforce reduction. The court determined that the payments are taxable earnings but they don’t qualify for FICA taxes. You can see a discussion of this case at the following website: http://www.gelberorg.com/ficarefund.html

If your company was party to an organized layoff and made severance payments as part of the arrangements, you probably paid the FICA as part of the payouts. If so, there is an opportunity for you to recover the company portion of the FICA amounts. At the 7.65% maximum rate, the recovery could be substantial.

However, the case was never finalized. We were recently advised by the IRS contact person for FICA refund claims that the final determination from the court is about to be released and he expects the original determination to stand. He also mentioned that 42,000 claims had been filed with the IRS so far.

While the IRS may appeal the final determination, this continues to be a strong case. We recommend that, if your company had a workforce reduction program in the past three years, you protect your interests by filing the paperwork to claim for the overpaid FICA.

Our business is the audit and recovery of overspent funds and other recovery services to increase your bottom line. If you would like to discuss this case or other expense-recovery issues, please give us a call.

If you missed this meeting, that’s too bad! There were 46 attendees at the offices of Biogen Idec in Cambridge. Here is a recap of the meeting.

The first session of the morning was Form 1099 Reporting and Employment Tax Issues by Wendy Campbell, Sr. Stakeholder Liaison of the IRS. Wendy captivated the audience with discussion of 1099 issues. In fact, it was so interesting that we want to invite her to our next meeting in February!

Her discussion included:
--the Tax Gap (tax amounts that should be paid by taxpayers vs. taxes that are paid)
--TIN matching, especially the procedures to establish an account for matching
--B Notices
--new regulations on performers tax withholding
--Tax Talk Today webcasts, especially the October 18, 2005 webcast Form 1099 Information Reporting. Register for webcasts and see archived sessions at www.TaxTalkToday.tv.

The second session was Taking Your Team to the Next Level, by Charles Tweedly. This session helped us understand the traps that can decrease effectiveness, how to overcome these obstacles, and take the steps to better group effectiveness. We organized into small groups of seven or eight to work through a problem-solving challenge that forced us to draw upon individual knowledge of all members of the group. The challenge required us to think in abstract terms and forced interaction between group members. Charles has worked extensively with major organizations to improve team dynamics and performance. If you are interested in similar services you can send Charles an email at charlest@pdassociates.com. You can see his company’s services at www.pdassociates.com

The IAPP is a non-profit service organization committed to the advancement of Accounts Payable professionals. The purpose of the IAPP is to 1) support member networking, 2) provide educational opportunities and 3) enhance awareness of the accounts payable profession. You can reach the IAPP at www.iappnet.org.