|IRS Announces It Will Cease Its Illegal
Collection of Excise Taxes on Phone Service
5/25. The Department of the Treasury, of which the Internal Revenue Service (IRS)
is a component, announced in a
release that "it is
conceding the legal dispute over the federal excise tax on long-distance
Five federal circuits, and numerous trial courts, previously held that the IRS
could not collect excise taxes on certain telecommunications services.
The DOT added that "The Department of Justice will no longer pursue
litigation and the Internal Revenue Service (IRS) will issue refunds of tax on
long-distance service for the past three years. Taxpayers will be able to apply
for refunds on their 2006 tax forms, to be filed in 2007."
The DOT offered no explanation for why it for so long persisted in collecting
a tax that, under the plain meaning of the statute, it could not collect. Nor
did it explain its long running defiance of the the authority of the federal courts.
The DOT added the following: "No immediate action is required by taxpayers.
Refunds will be a part of 2006 tax returns filed in 2007. Refund claims will
cover all excise tax paid on long-distance service over the last three years
(time allowed given statute of limitations). Interest will be paid on refunds.
The IRS is working on a simplified method for individuals to use to claim a
refund on their 2006 tax returns. Refunds will not include tax paid on local telephone
service, which was not involved in the litigation." (Parentheses in original.)
Statute. This issue involves
26 U.S.C. § 4251, which imposes a 3 percent excise tax on some, but not all,
communications services. This tax is sometimes referred to by its opponents as the
"Spanish American War tax", since it was originally imposed to help fund that war.
In addition, John Snow
(at left), the Secretary of the Treasury, stated in the DOT
release that "In addition to ending the litigation, I would like to call on
Congress to terminate the remainder of this antique tax by repealing the excise
tax on local service as well." He added that this "marks the beginning of the
end of an outdated, antiquated tax that has survived a century beyond its
original purpose, and by now should have been ancient history."
The IRS had applied a tortured interpretation to the applicable statutory language.
26 U.S.C. § 4252 contains the relevant definitions.
§ 4251(b) provides that the term ''communications services'' means "(A) local
telephone service; (B) toll telephone service; and (C) teletypewriter exchange
service". This issue involves "toll telephone service".
26 U.S.C. § 4252(b) provides that "toll telephone service" means
"(1) a telephonic quality communication for which
(A) there is a toll charge which varies in amount with the distance and
elapsed transmission time of each individual communication and
(B) the charge is paid within the United States, and
(2) a service which entitles the subscriber, upon payment of a periodic charge
(determined as a flat amount or upon the basis of total elapsed transmission
time), to the privilege of an unlimited number of telephonic communications to
or from all or a substantial portion of the persons having telephone or radio
telephone stations in a specified area which is outside the local telephone
system area in which the station provided with this service is located."
(Parentheses in original.)
That is, to be taxable, a "toll telephone service" must include a "toll
charge which varies in amount with the distance and elapsed transmission time". The key
word here is "and". The carriers and taxpayers have long asserted that the word
"and" means "and". The IRS long asserted that "and" means
The IRS long collected billions of dollars in taxes where the charge did not
vary with distance, in violation of the plain meaning of the statute.
Court of Appeals Opinions. The federal appeals courts uniformly instructed the
IRS that the word "and" means "and", and that its tax collections are
The U.S. Court of Appeals (11thCir)
opinion [22 pages in PDF] in ABIG v. IRS on May 10, 2005. See,
titled "IRS Loses Appeal Over 3% Excise Tax on Communications" in
TLJ Daily E-Mail
Alert No. 1,133, May 11, 2005. This case is American Bankers Ins. Group
v. United States, U.S. Court of Appeals for the 11th Circuit, App. Ct. No.
04-10720, an appeal from the U.S. District Court for the Southern District of
Florida, D.C. No. 03-21822 CV-PCH. The Court of Appeals
opinion is also reported at 408 F.3d 1328. The District Court opinion is also
reported at 308 F. Supp. 2d 1360.
The U.S. Court of Appeals (6thCir) issued its
[20 pages in PDF] in Office Max v. US on November 2, 2005. See,
story titled "IRS Loses Another Appeal Regarding 3% Excise Tax" in
TLJ Daily E-Mail
Alert No. 1,246, November 3, 2005. This case is Office Max, Inc. v.
U.S.A., U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 04-4009, an
appeal from the U.S. District Court for the Northern District of Ohio, at
Cleveland, D.C. No. 03-00961, Judge Patricia Gaughan presiding. The Court of
Appeals opinion is reported at 428 F.3d 583.
Court of Appeals (DCCir) issued its
opinion [11 pages in PDF] in Amtrak v. US on December 9, 2005. The
National Railroad Passenger Corporation is better known as Amtrak. This case is
National Railroad Passenger Corp. v. United States, U.S. Court of Appeals
for the District of Columbia Circuit, App. Ct. No. 03cv00431, an appeal from the
U.S. District Court for the District of Columbia. This case
is reported at 431 F.3d 374.
The U.S. Court of
Appeals (2ndCir) issued its
opinion [PDF] in Fortis v. USA , on April 27, 2006. See also,
titled "2nd Circuit Rules Against IRS on Excise Tax on Phone Service" in TLJ
Daily E-Mail Alert No. 1,361, May 1, 2006. This case is Fortis, Inc. v.
United States of America, U.S. Court of Appeals for the 2nd Circuit, App.
Ct. No. 05-2518-cv, an appeal from the U.S. District Court for the Southern
District of New York, D.C. No. 03 Civ. 5137, Judge John Koeltl presiding. The Court of
Appeals issued a per curiam opinion of Straub, Sack and Trager.
The U.S. Court of Appeals (3rdCir) issued
its opinion [23 pages in PDF]
in Reese Brothers v. USA,
on May 9, 2006. See, story titled "IRS Loses Another Frivolous Appeal Regarding
Telephone Excise Tax" in TLJ Daily E-Mail Alert No. 1,367, May 10, 2006.
|House Judiciary Committee Approves Net
5/25. The House Judiciary Committee (HJC) amended
and approved HR 5417,
the "Internet Freedom and Nondiscrimination Act of 2006".
This is the network neutrality bill sponsored by
Rep. James Sensenbrenner (R-WI),
Conyers (D-MI), Rep. Rick Boucher
(D-VA), and Rep. Zoe Lofgren (D-CA).
For a summary of the base bill, see story titled "Sensenbrenner and Conyers
Introduce Net Neutrality Bill" in TLJ Daily E-Mail Alert No. 1,375, May 22, 2006.
(at left), the Chairman of the HJC, stated that "most Americans are
subject to a broadband duopoly while others -- particularly in rural areas --
are subject to a broadband monopoly". He said that "These conditions create an
environment ripe for anti-competitive and discriminatory misconduct."
He said that HR 5417 "prohibits anticompetitive conduct in which the network
provider fails to provide service and interconnection on nondiscriminatory terms, blocks
or impairs lawful content, prohibits users from attaching devices to its network, or fails
to inform consumers about the terms of the broadband service."
Rep. Sensenbrenner also said that the
House Commerce Committee (HCC) recently
approved HR 5252,
the "Communications Opportunity, Promotion, and Enhancement Act of 2006", or COPE
Act. See, stories titled Amendment by Amendment Summary of Full Committee Mark Up of COPE
Act" and "Roll Call Votes On COPE Act" in TLJ Daily E-Mail Alert No. 1,360,
April 28, 2006.
He said that the COPE Act "vest the FCC with ``exclusive´´ authority to define
and adjudicate discriminatory broadband practices, while explicitly prohibiting
the FCC from issuing any rules or regulations to establish meaningful sanctions
for this misconduct. These provisions displace the application of the antitrust
laws in this field and transgress the authority of this Committee. H.R. 5417
restores these safeguards."
|Roll Call Vote
on HR 5417
|J. Sensenbrenner (WI)
|Henry Hyde (IL)
|Howard Coble (NC)
|Lamar Smith (TX)
|Elton Gallegly (CA)
|Bob Goodlatte (VA)
|Steve Chabot (OH)
|Dan Lungren (CA)
|Wm. Jenkins (TN)
|Chris Cannon (UT)
|Spencer Bachus (AL)
|Bob Inglis (SC)
|John Hostettler (IN)
|Mark Green (WI)
|Ric Keller (FL)
|Darrell Issa (CA)
|Jeff Flake (AZ)
|Mike Pence (IN)
|Randy Forbes (VA)
|Steve King (IA)
|Tom Feeney (FL)
|Trent Franks (AZ)
|Louie Gohmert (TX)
|John Conyers (MI)
|Howard Berman (CA)
|Rick Boucher (VA)
|Jerrold Nadler (NY)
|Bobby Scott (VA)
|Mel Watt (NC)
|Zoe Lofgren (CA)
|Sheila Lee (TX)
|Max. Waters (CA)
|Marty Meehan (MA)
|Wm. Delahunt (MA)
|Robert Wexler (FL)
|Anthony Weiner (NY)
|Adam Schiff (CA)
|Linda Sanchez (CA)
|C. Van Hollen (MD)
|Debbie Schultz (FL)
The HJC approved a manager's amendment offered by Rep. Sensenbrenner on a
voice vote. There
were no other amendments. The HJC then approved the bill, as amended, on a roll
call vote of 20-13-1. See, roll call at left.
The lopsided vote in favor of this bill, while the HCC overwhelmingly
rejected a different network neutrality proposal on April 26, was due in part to
the desire by many HJC members to preserve the HJC's jurisdiction, preserve the role
of the courts in adjudicating disputes regarding anticompetitive practices by
broadband service providers, and to preserve a role for the HJC in the
formulation of telecom reform legislation generally.
The HCC members drafted and amended the COPE Act with the goal of excluding
any claim to jurisdiction by the HJC.
Hence, some HJC members criticized the content of HR 5417, but nevertheless
voted for it.
Summary Of Bill As Amended. First, the bill enumerates a list of prohibited
practices. It provides that "It shall be unlawful for any broadband network
(1) to fail to provide its broadband network services on reasonable
and nondiscriminatory terms and conditions such that any person can offer or
provide content, applications, or services to or over the network in a manner
that is at least equal to the manner in which the provider or its affiliates
offer content, applications, and services, free of any surcharge on the basis of
the content, application, or service;
(2) to refuse to interconnect its facilities with the facilities of
another provider of broadband network services on reasonable and
nondiscriminatory terms or conditions;
(3)(A) to block, to impair, to discriminate against, or to
interfere with the ability of any person to use a broadband network service to
access, to use, to send, to receive, or to offer lawful content, applications or
services over the Internet; or (B) to impose an additional charge to avoid any
conduct that is prohibited by this subsection;
(4) to prohibit a user from attaching or using a device on the
provider’s network that does not physically damage or materially degrade other
users’ utilization of the network; or
(5) to fail to clearly and conspicuously disclose to users, in
plain language, accurate information concerning any terms, conditions, or
limitations on the broadband network service."
This language, from the base bill, was not amended by the manager's amendment.
Second, the bill provides that "If a broadband network
provider prioritizes or offers enhanced quality of service to data of a
particular type, it must prioritize or offer enhanced quality of service to all
data of that type (regardless of the origin or ownership of such data) without
imposing a surcharge or other consideration for such prioritization or enhanced
quality of service." (Parentheses in original.)
This too was left unchanged by the manager's amendment.
Third, the bill provides that it does not prevent a broadband network provider from
taking certain enumerated "reasonable and nondiscriminatory measures". The
manager's amendment rewrites this subsection. The bill, as amended, now provides as follows:
"Nothing in this section shall be construed to prevent a broadband network
provider from taking reasonable and nondiscriminatory measures---
(1) to manage the functioning of its network, on a systemwide
basis, provided that any such management function does not result in
discrimination between content, applications, or services offered by the
provider and unaffiliated provider;
(2) to give priority to emergency communications;
(3) to prevent a violation of a Federal or State law, or to comply
with an order of a court to enforce such law;
(4) to offer consumer protection services (such as parental
controls), provided that a user may refuse or disable such services;
(5) to offer special promotional pricing or other marketing
(6) to prioritize or offer enhanced quality of service to all data
of a particular type (regardless of the origin or ownership of such data)
without imposing a surcharge or other consideration for such prioritization or
quality of service."
(Parentheses in original. The above language also includes two technical and conforming
changes that TLJ anticipates will be made by HJC counsel, namely, deletion of one use of
the word "or" between items, and changing a "." to a ";".)
|Washington Tech Calendar
New items are highlighted in red.
|Friday, May 26
The House will not meet. It will next meet on Monday, June 5, 2006.
The Senate will meet at 8:45 AM. It will resume consideration of the
nomination of Brett Kavanaugh to be a Judge of the U.S. Court of
Appeals for the District of Columbia.
Deadline to submit comments to the Federal
Communications Commission (FCC) regarding the April 27, 2006, recommendations of the
World Radiocommunication Conference Advisory Committee (WRC-07 Advisory Committee). See, FCC
[145 pages in PDF], with the recommendations attached. This proceeding is IB Docket
|Monday, May 29
The House will not meet on Monday, May 29, through Friday, June 2.
See, Majority Whip's
The Senate will not meet on Monday, May 29, through Friday, June 2. See,
2006 Senate calendar.
The Federal Communications Commission
(FCC) and other federal offices will be closed. See, Office of Personnel Management's
(OPM) list of federal holidays.
|Tuesday, May 30
8:30 AM - 5:30 PM. Day one of a two day workshop on public participation
in nanotechnology hosted by the National Nanotechnology Coordination Office (NNCO). See,
notice in the Federal Register, May 3, 2006, Vol. 71, No. 85, at Page 26117. Location:
Westin Arlington Gateway Hotel, 801 North Glebe Road, Arlington, VA.
9:30 AM. The
House Judiciary Committee (HJC) will hold a hearing titled "Reckless Justice: Did the Saturday Night Raid of
Congress Trample the Constitution?". See,
hearing will be webcast by the HJC. Location: Room 2141, Rayburn Building.
12:00 NOON - 5:00 PM. The
American Enterprise Institute (AEI) will
host an event titled "The SEC's
Interactive Data Revolution: Improved Disclosure for Investors, Less Expensive
Reporting for Companies". Lunch will be served at 12:00 NOON. Peter
Wallison (AEI) will introduce the program at 12:45 PM. Chris Cox,
Chairman of the Securities and Exchange
Commission (SEC), will give the keynote address at 12:45 PM. At 1:45 PM
there will be a panel titled "XBRL, the New Computer Language: How It Creates
Interactive Data". The speakers will be Richard Daly (Automatic Data
Processing, Inc.), Mark Schnitzer (Morgan Stanley), Louis Thompson (National
Investor Relations Institute), Mike Willis (Pricewaterhouse Coopers), and
James Glassman (AEI). At 3:30 PM there will be a panel titled "Enhanced
Business Reporting: Why It Is Necessary and How It Works with XBRL". The
speakers will be Alan Anderson (Franklin Templeton Investments, Inc.), Robert
Eccles (Advisory Capital Partners), John Philip (Infosys Technologies
Limited), Mike Willis (PWC), and Peter Wallison (AEI). See,
notice and registration page. Location: AEI, 1150, 17th Street, NW.
Deadline to submit initial comments to the Federal Communications
Commission (FCC) in response to its notice of proposed rulemaking (NPRM) regarding
licensing and use of frequencies in the 904-909.75 and 919.75-928 MHz portions of the
902-928 MHz band that are used for the provision of multilateration Location and
Monitoring Service (M-LMS band). This NPRM is FCC 06-24 in WT Docket No. 06-49. See,
[24 pages in PDF] of NPRM;
notice in the Federal Register, March 29, 2006, Vol. 71, No. 60, at Pages
15658-15666; and story titled "FCC Releases NPRM on M-LMS Systems" in TLJ
Daily E-Mail Alert No. 1,325, March 8, 2006.
Deadline to submit comments to the U.S.
Patent and Trademark Office (USPTO) in response to its notice of proposed rulemaking
(NPRM) regarding changes to the rules of practice relating to ex parte and
inter partes reexamination. See,
notice in the Federal Register, March 30, 2006, Vol. 71, No. 61, at Pages
|Wednesday, May 31
8:30 AM - 5:00 PM. Day two of a two day workshop on
public participation in nanotechnology hosted by the National
Nanotechnology Coordination Office (NNCO). See,
notice in the Federal Register, May 3, 2006, Vol. 71, No. 85, at Page
26117. Location: Westin Arlington Gateway Hotel, 801 North Glebe Road,
|Thursday, June 1
Deadline to submit comments to the
Federal Trade Commission (FTC) in response to its
Notice of Proposed Rulemaking (NPRM) to amend the Telemarketing Sales Rule (TSR) to
revise the fees charged to entities accessing the National Do Not Call Registry. See,
notice in the Federal Register, May 1, 2006, Vol. 71, No. 83, at Pages
|Monday, June 5
The House will return from its Memorial Day recess. See, Majority Whip's
The Senate will return from its Memorial Day recess. See,
2006 Senate calendar.
9:00 - 11:00 AM. The Office of the Deputy Director
of National Intelligence for Collection will hold a meeting. See,
notice in the Federal Register, May 12, 2006, Vol. 71, No. 92, at Page
27745. Location: Heritage Conference Center, TASC Northrop Grumman, 4803
Stonecroft Boulevard, Chantilly, VA.
10:00 AM. The U.S. Court of Appeals
(FedCir) will hear oral argument in Wireless Agents v. Sony Ericsson.
This case is App. Ct. No. 2006-1054. Location: Courtroom 203, 717 Madison Place, NW.
2:00 PM. The U.S. Court of Appeals
(FedCir) will hear oral argument in Integra LifeSciences v. Merck. This case
is App. Ct. No. 2002-1052. Location: Courtroom 203, 717 Madison Place, NW.
Deadline to submit reply comments to the Federal Communications
Commission (FCC) regarding the petition of the
Georgia Public Service Commission (GPSC) for a declaratory ruling that the GPSC is
not preempted by federal law from regulating rates under
47 U.S.C. § 271 for local switching, high capacity loops and transport,
and line sharing. See, FCC
[PDF]. This is WC Docket No. 06-90.
Deadline to submit initial comments to theFederal
Communications Commission (FCC) regarding the
transfer of licenses associated with the AT&T, BellSouth, and Cingular
transaction. This is nominally a license transfer proceeding, but is also in the nature
of an antitrust merger review. This proceeding will be governed by "permit but
disclose" ex parte communications procedures under Section 1.1206 of the FCC's rules.
[10 pages in PDF] and FCC
web page for its
AT&T/SBC/Cingular merger review. This proceeding is WC Docket No. 06-74.
Deadline to submit comments to the National
Institute of Standards and Technology (NIST) regarding
Draft Special Publication 800-38D [23 pages in PDF], titled "Recommendation
for Block Cipher Modes of Operation: Galois/Counter Mode (GCM) for
Confidentiality and Authentication".
|People and Appointments
5/26. On May 25, the Senate approved a motion to invoke cloture on the nomination of
Brett Kavanaugh to be
a Judge of the U.S. Court of Appeals for
the District of Columbia by a vote of 67-30. See,
Roll Call No. 158. On May 26, the Senate confirmed Kavanaugh by a vote of 57-36. See,
Roll Call No. 159. See also,
statement by President Bush.
5/26. The Senate confirmed Gen.
Michael Hayden (at right) to be Director of the Central
Intelligence Agency (CIA) by a vote of 78-15. See,
Roll Call No. 160. See also,
statement by President Bush.
5/25. The House Judiciary Committee (HJC)
announced that it will hold a hearing on Tuesday, May 30, 2006 titled "Reckless Justice:
Did the Saturday Night Raid of Congress Trample the Constitution?". See,
notice. Attorney General
Alberto Gonzales stated in a release that this was a "search of Congressman Jefferson's
office" in an "ongoing public corruption investigation".
Rep. William Jefferson's (D-LA)
troubles could impact technology related trade legislation. He is a member of the
House Ways and Means Committee (HWMC), and its
Subcommittee on Trade. Back in 2001 he was one of the Democrats who worked for HWMC and House
approval of HR 3005
(107th Congress), the "Bipartisan Trade Promotion Authority Act of 2001", and
related bills, which gave the President trade promotion authority (TPA). Republicans held a
majority of the seats in the House, and the Republican leadership backed the bill. The
Democratic leadership opposed the bill. Some Republican members voted against the bill. Hence,
the bill could only have been enacted with the support of Democrats. Rep. Jefferson worked
to win Democrats' votes. The key vote on TPA, on December 6, 2001, was 215-214. See, stories
in TLJ Daily E-Mail Alert No.
323 , December 7, 2001. TPA expires next year. Support for TPA and free trade agreements
has diminished since 2001. It would further diminish with the departure of Rep. Jefferson.
|About Tech Law Journal
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