Class action lawsuit filed seeking refunds of communications excise tax.

• Author: Webber, A. Duane

Earlier this year, Radioshack Corporation filed suit on behalf of itself and all similarly situated taxpayers seeking refunds of overpaid federal excise tax on the ground that the tax was erroneously applied by the Internal Revenue Service to long-distance telephone services that were charged based on a flat rate per minute or other unit of time and without regard to the distance of each call. See Radioshack Corporation v. United States, Docket No. 06-28 (Fed. C1. filed January 10, 2006). A motion to certify the class was filed on February 24, 2006. The government currently is scheduled to file an Answer by mid-April and to respond to the motion to certify by the end of April. Although the refund at stake for any given taxpayer may not place the issue high on the Tax Department's list of important issues, the IRS itself has estimated that the aggregate revenue collected through the erroneous application of the tax is in the range of $6 billion to $9 billion.

Scope of the Class Action

The class action covers all individuals and entities in the United States that purchased telecommunications services at any time within any period of limitations that may be determined to apply. The subject matter of the class action is the federal excise tax imposed on communications services by section 4251 (the "Communications Excise Tax"). That provision, through definitions contained in section 4252, imposes the Communications Excise Tax on a variety of services. One of those services is the so-called toll telephone service (commonly referred to as long-distance service), the charges for which are levied on a call-by-call basis and which vary based on, according to the statute, "distance and elapsed transmission time." I.R.C. [section] 4252(b)(1). Based on the plain language of section 4252(b)(1), a service charged on a call-by-call basis that varies only based on "elapsed transmission time" and does not vary based on "distance" (such as one of the very common "flat rate per-minute" plans, e.g., 7 cents a minute for each long distance call to any location in the United States) is not subject to the Communications Excise Tax. Although the application of the Communications Excise Tax to various other services may be appropriate under the relevant statutory provisions, the lawsuit alleges that the Internal Revenue Service has ignored the clear statutory requirements in section 4252(b)(1) in ruling that, despite the "literal" language of section 4252(b)(1)...