CLEVELAND (TDB) -- Usually, it is the IRS calling taxpayers in for a chat about some activity that needs explaining. Today, the tax agency that has to answer questions from a federal judge in Cleveland.
Paint manufacturer Sherwin-Williams Co., a multi-billion industrial giant based in Ohio, filed a lawsuit against the government earlier this year claiming it is owed about $250,000 in telephone excise-tax refunds. The tax was enacted to finance the Spanish-American War in 1898, and the IRS finally gave up trying to collect it last May, about 108 years after Teddy Roosevelt's Rough Riders charged up San Juan Hill. For years, the tax applied to all phone calls.
In 1965, it was changed to cover long-distance. But only "if the duration and distance between callers was factored into the price of the call," according to the Tax Foundation, a non-profit organization that watches such things.
The IRS became ensnared in a flurry of lawsuits, lost many of them, and now agrees it was wrong. Phone plans and technology had evolved. The legal language that authorized the tax became outdated because most telephone and cellphone calls are billed by the minute, not distance.
Sherwin-Williams, like a lot of big companies, wanted its money back and filed suit earlier this year in U.S. District Court. The company said it started seeking payback from the IRS regional service center in Cincinnati in December 2002 and has yet to see a penny. ''The IRS did not allow plaintiff's claims for refund of federal communications excise taxes. More than six months have passed," Sherwin-Williams' lawyers Caryn Groedel and Jennifer Speck of Cleveland said in the suit. (Northern District of Ohio, 1:06-cv-328).
On Nov. 16, the IRS announced a formula that will allow businesses and tax-exempt organizations to estimate how much they should get back. Or, the agency said, a firm can figure out exactly how much it overpaid.
Both the IRS and Sherwin-Williams notified U.S. District Judge Lesley Wells that they were putting the tax case on ice. They asked her for an administrative dismissal with right to reinstatement, a procedure that the judge wants to know more about today. Wells said she needed clarification over how Sherwin-Williams and the government agreed the paint-maker had a right to reinstate the case "as if it had not been dismissed" if the refund isn't processed to the company's satisfaction.
''The parties seek to dismiss this action without prejudice in order that the plaintiff can pursue its action administratively with the Internal Revenue Service. The motion does not cite authority under which the parties seek this dismissal,' Wells said, adding that she didn't know how she "may impose such a condition."
Meanwhile, the IRS says individual Americans can get refunds next year for the unjustly collected phone tax. To simplify things, it said it will offer $30 for one person; $40 for two;
$50 for three and $60 for households reporting four or more exemptions. Details on the telephone tax refund will be included in 2006 tax return materials that will be landing in mailboxes within a few day, or on the Website http://www.IRS.gov