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The IRS recently concluded (ILM 201231011) that a taxpayer
should report income related to a telephone excise tax refund when
all the events have occurred that fix the right to receive such
income and the amount thereof can be determined with reasonable
accuracy.
Notice 2006-50 provided taxpayers with a method of claiming a
credit or refund of tax, under Section 4251, that was paid for
nontaxable services. The notice allowed taxpayers to claim a safe
harbor amount or the actual amount paid.
The ILM notes that if a requirement that documentation be
submitted is ministerial, the requirement does not affect the
determination of whether all events that fix the right to receive
income have occurred. The notice provided that in determining a
taxpayer's 2007 installments of estimated tax, the income
attributable to the credit or refund is taken into account on the
date the return making the request is filed in the case of an
accrual method taxpayer. Accordingly, the ILM states that Notice
2006-50 effectively treated the IRS approval of a request for
refund made on an original 2006 return as a ministerial act if the
request was properly substantiated and was for the actual amount of
telephone excise tax charged and paid.
Therefore, in accordance with Notice 2006-50, a taxpayer should
report income on the date the return making the request is filed if
the taxpayer makes a properly substantiated request for refund of
the actual amount paid on the original 2006 return. Otherwise, a
taxpayer generally should report income from a telephone excise tax
refund when he or she received payment or notice that the request
for refund was approved, whichever is earlier.
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The Internal Revenue Service has recently published an IRS Large Business & International Directive, which updates an earlier directive to field agents addressing the examination of capitalization and repair costs issues.
A state cannot include income in the apportionable base and then exclude the receipts and related factors that generated that very same income from the apportionment formula.
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