Small Taxpayers Say IRS Phone Tax Refund Rules are Unlawful, Unfair & Exclude Millions of Americans

Behind Closed Doors, IRS Made Rules That Will Exclude the Less Affluent

from Refunds; Class Action Lawsuit Seeks Return of As Much as $40 Billion

to All Taxpayers

Jul 06, 2006, 01:00 ET from Cuneo Gilbert & LaDuca, LLP

    WASHINGTON, July 6 /PRNewswire/ -- Taxpayers today filed an amended
 complaint in the United States District Court for the District of Columbia
 asserting the Internal Revenue Service devised rules that will effectively
 deny refunds to and shortchange American taxpayers entitled to refunds by
 billions of dollars. The IRS devised these rules without public input. The
 tax refund and credit rules released May 25 will harm the interests of all
 consumers of phone services and leave millions with nothing, the lawsuit
     The amended class action lawsuit, Sloan, et al v. United States of
 America acting by and through the Internal Revenue Service, was originally
 filed on March 15, 2006 to end the illegal three percent federal excise tax
 upon long distance phone calls and sought the return of all money
 unlawfully exacted through the excise "tax" upon certain long distance and
 wireless telephone charges added to consumers' monthly bills for more than
 eight years. Two months after the case was filed -- with motions for
 preliminary injunction and class certification pending and in the face of
 five U.S. District Courts of Appeal declaring the excise tax to be illegal
 -- the government announced it would stop collecting the tax and refund the
 money to taxpayers. Now, the Sloan plaintiffs, including individual and
 small business taxpayers, call for an accounting and fair, efficient and
 accurate restitution, with interest, to all taxpayers of the tens of
 billions of dollars unlawfully exacted before the Government acknowledged
 that the tax was illegal.
     Secret Rules Issued by Fiat Violate Law and Exclude Millions of
     "Unfortunately, after years of illegally 'nickel and diming' Americans
 on their phone bills, the IRS would now shortchange everyone and
 arbitrarily impose huge burdens on small businesses and many low income
 individuals especially senior citizens," explained
     Jonathan Cuneo of Cuneo Gilbert & LaDuca, LLP of Washington, DC, a
 co-lead attorney for the plaintiffs. "Behind closed doors, the IRS by fiat
 made demographic choices in designing the tax refund rules that will
 effectively deny the less affluent the ability to recover their own money."
     The IRS rules governing the excise tax refund or credit published May
 25 as Notice 2006-50 were devised without the public review or input
 required by the Federal Administrative Procedure Act, the lawsuit asserts.
 The IRS would allow for a refund/credit of taxes paid during only three of
 the eight years the tax was illegally exacted. And, by requiring all
 taxpayers to file income tax forms to receive the refund/credit they are
 entitled to, the rules effectively exclude millions of non-filers such as
 senior citizens and other low income consumers of phone services whose
 level of earnings fall below the minimum filing requirement. Finally,
 unlike individual taxpayers who may opt to accept a flat "safe harbor"
 refund/credit dollar amount (yet to be determined by the IRS), small
 businesses are required to compile years of monthly phone bills and
 calculate the actual amount of taxes they illegally paid before receiving
     IRS Unlawfully Acted To Cut Payback of Taxpayers' Own Money
     "For no stated reason and with no legal authority to do so, the IRS
 unilaterally acted to sharply cut the payback of taxpayers' own money," Mr.
 Cuneo continued. "It is simply unfair to exclude millions of non-filers
 from the payback and force small 'mom and pop' businesses to expend hours
 and hours collecting and analyzing over years of records in order to
 receive their own money."
     According to AARP, at least 37 percent of those aged 65 or older, or 13
 million Americans, did not file income tax returns in 1998 because they did
 not earn enough money to be required to do so. But, most of those seniors
 and millions of other Americans with low incomes had telephones and paid
 the illegal excise tax on their monthly bills during that year and in each
 successive year. The Class's attorneys contend most of those taxpayers will
 not benefit from the refund rules as now constructed because they do not
 file income tax returns.
     Taxpayers Entitled to As Much As $40 Billion Unlawfully Collected
     Five Federal Appeals Courts (in the Second, Third, Sixth, Eleventh and
 District of Columbia circuits) have ruled in lawsuits brought by major
 corporations that the communications excise tax was never authorized by
 Congress as required by the Constitution. The CONGRESSIONAL RESEARCH
 SERVICE (CRS), which in an April 24 report described the tax as
 "regressive" because it did not "treat similarly situated taxpayers
 equally" and "reduces overall economic welfare," estimates the tax exacted
 a total of about $6 billion each year from virtually all Americans with
 long-distance telephone service.
     "Using the CRS annual estimate, between $30 and $40 billion was
 collected unlawfully by the government since 1998," according to Nicholas
 Chimicles of Chimicles & Tikellis LLP of Haverford, PA, another co-lead
 counsel for the plaintiffs. "A long series of Supreme Court decisions
 demonstrate taxpayers are entitled to the 'clear and certain' remedy of
 full restitution of taxes, plus interest, collected in violation of federal
     The three percent federal excise tax is levied upon toll charges for
 long distance service as defined in 1965 and should have been applied only
 where the charge for a toll call varied on the basis of both the distance
 and elapsed time of each individual call. But, most long-distance carriers
 now charge a flat per minute rate for calls to anywhere in the nation.
 AT&T, for instance, had abandoned distance and time formulas by 1997 and
 MCI followed in 2000.
     IRS "Arrogantly" Violated The Law; Small Taxpayers Left in Dark
     "As technology changed and more telephone services were billed at flat
 rates, the government never went back to Congress to seek a three percent
 excise tax on long distance service based on elapsed time only," explained
 Robert Cynkar of Egan, Fitzpatrick, Malsch & Cynkar, PLLC, a Deputy
 Assistant Attorney General of the United States during the Reagan
 Administration and another attorney representing the plaintiffs. "Instead,
 in a clear violation of the Constitution, the government simply imposed the
 tax, which was small and went unnoticed by most individuals. Now, by
 promulgating unfair refund rules without public input, the government has
 arrogantly violated federal law yet again. Conservatives should be
     Among the corporations that had earlier won federal appeals court
 decisions finding the tax illegal and that won tax refunds are AOL, Hewlett
 Packard, OfficeMax and Honeywell. "These companies that challenged the tax
 -- and won -- performed a valuable service," said Hank Levine of Levine,
 Blaszak, Block & Boothby, LLP, one of the Sloan class action plaintiffs'
 lawyers and lead counsel in most excise taxpayer court victories to date.
 "But, even as companies were winning relief from this unauthorized tax, it
 is only through a class action like ours that smaller taxpayers can gain
 relief from being systematically fleeced by this illegal tax. And, ours is
 the first case to point out the fatal flaws in the Government's new refund
     For a copy of complaint and other documents, please contact Jonathan
 Cuneo at 202-789-3960, Nicholas Chimicles at 610-642-8500, or Jeff McCord
 at 540- 364-4769.

SOURCE Cuneo Gilbert & LaDuca, LLP