Tuesday, September 13, 2005

Bad news for the IRS, and good news from it.

For the eighth time a federal court has ruled that the federal excise tax on long-distance telephone service is illegal as currently enforced and collected by the IRS, and ordered the tax refunded. This time Hewlett-Packard gets a nice $6,385,000 back from the tax man -- and going forward it will pay telephone tax no more. Hewlett-Packard Company v. U.S., No. C-04-03832, DC ND Ca.

There's a total of more than $6 billion in potential tax refunds at stake here for businesses both big and small, and for individuals with large long-distance bills too. (Refunds can be claimed on taxes paid up to three years back).

The IRS has lost every case on this issue so far, including at the Court of Appeals -- most on summary judgement, meaning the judge decided it didn't even have a case worth hearing at at a trial. It continues to stonewall on the telephone tax, but it can't do that forever, something's got to give.

Remarkably, I haven't seen anything about this reported in the general press anywhere. (What ever happened to "news you can use"?)

But you can get the whole story -- and the full text of the federal appeals court decision that is now the leading legal authority on the issue -- via my first post on this subject, which has been updated with citations to winning cases as they come in.

Meanwhile, the increase in the price of gasoline post-Katrina has led the IRS to increase the standard mileage rate for deducting the cost of business driving by 8 cents per mile (to 48.5 cents from 40.5) for the rest of 2005.

That may not sound like much, but at 20 miles per gallon that's an additional deduction of $1.60 per gallon -- while Professor Hamilton notes the actual cost of gasoline rose by only about 50 cents per gallon, and that only briefly, it seems headed back down towards pre-Katrina prices right now.

So the IRS is being pretty generous here.

As an aside, the cents per mile rate for medical expense and moving deductions was increased by only 7 cents. I guess gasoline costs less for them. And the rate for driving for charity was not increased at all.

People are always talking about "tax simplification". But the government can't even set a uniform cents-per-mile rate for the cost of driving a car -- or even for just the cost of gasoline -- when driving is for different purposes.

There will never be tax simplification.