The Prepaid Press - November 15, 2007 - (Page 11)

GENERAL PREPAID November 15 · 2007 - 11 THE LEGAL LINE by Ed Maldonado paid the FET) and the Holder (end-user or consumer that used the service) are well illustrated. The “Transferee” by IRS definition is the ﬁrst person, either individual or corporate entity, that is not a carrier to which the prepaid telephone card or prepaid wireless telephone services was transferred by the carrier. Under the former FET tax schema, it was the Transferee who was the one liable for payment of this excise tax and the one is now entitled to request the refund or the tax credit. Form 8913 gives a good example that demonstrates one possible ﬂow through of the FET that liability afﬁxes to distributors as the Transferee: Consumer “S” purchases the prepaid telephone card (or prepaid cellular telephone service) from “O”. “O” is a transferee that purchased the card from “R”. “R” is a carrier. “O” is eligible to request a credit or refund. “S” cannot request a credit because “S” did not purchase the prepaid telephone card from the carrier. Taken from Example 2 on page 2 of IRS 2006 Instructions for Form 8913. Now who was “O”, or the Transferee for FET purposes, is an issue of fact. You will note the IRS example does not qualify “O” as a carrier’s own distribution arm, an independent carrier, or the retailer. Likewise, the traditional distribution channel of prepaid calling card from carrier to consumer by means of distributors reselling to retailers at discount is also not addressed in this example. The result is that the Transferee must prove that they are rightfully entitled to the FET tax credit or refund. The likely transferee in your business dealings as an independent distributor for prepaid calling cards and wireless carrier, presuming your business was not a distribution arm controlled by a carrier, was probably your company. Whether this can be the basis for your refund or credit, as the Transferee, will come down to your Accountant/CPA’s review of your carrier bulk purchases of cards and wireless recharges to ensure a reasonable justiﬁcation that you were in fact the Transferee. This hinges more on GAAP standards than legal standards. When it came to the FET and prepaid calling cards, the actions taken by carriers in the collection and remittance of the FET covered a broad spectrum. Some carriers may have charged transferees the FET but did not report or remit it to the IRS; some carriers may have overcharged the liability of the FET to distributors through build-ins in associated administrative fees; some carriers may have tried to qualify distribution afﬁliates under their control as the transferee, under arguments that the afﬁliate was a separate company even though it was under their thumb at all times; and other carriers may have neither charged nor remitted the FET under protest to the IRS that it was not applicable. Where the carriers that you purchased prepaid cards from fell in this spectrum is something to be investigated and determined by your Accountant/CPA. You may, in fact, have some of each of these scenarios that applied to purchases of cards between the refund period of February 28, 2003 and August 1, 2006. Invoices are one source of distributor documentation as to whether the FET liability fell on your company, and may determine that your company is entitled to a refund or credit. The other source may be from the carrier FET tax reporting itself. Generally, carriers reported and remitted FET under IRS Form 720. The FET tax was unique in that remittance liability by carriers could pierce the corporate veil and liability for FET could go to the shareholders of the company, if the FET was not properly collected and remitted. Therefore, the motivation was there for carriers to properly report the FET. The result of all of this is that a good conﬁrming document chain for FET recovery can be found in IRS records of the Form 720s that the carrier ﬁled. Presumptively, if a carrier ﬁled a Form 720 between February 28, 2003 and August 1, 2006, and did business with you, the likelihood that you may be able to receive a refund or tax credit is strong. As far as carriers that you purchased from in the past are concerned, I don’t imagine that they will be eager or overly willing to disclose their past ﬁled Form 720s. In fact, I have heard of some carriers that have been as bold as to forward their distributors consent and assignment forms to be executed so that the Transferee’s rights are assigned to the carrier to go after FET tax credits or refunds. The justiﬁcation is that the carrier has better records and a better position to go after recovery. Whether this is proper or not is something for the IRS, or the courts, to determine later on, so I will not opine on that issue at this time. The point is, that I have heard of this occurring with some distributors and distributors signing off all or part of their eligible refund or tax credit of the FET without realizing it. Seek professional advice from both a CPA and tax attorney if this occurs. In light of such circumstances, it may be wise to consider an alternative process for obtaining this information – A Freedom of Information Act (FOIA) Request. Yes, the U.S. Citizen’s informational vanguard tool for government accountability can also be used to obtain copies of regular records within their possession. This includes the IRS and Form 720. An FOIA Request of a particular carrier’s ﬁled Form 720 should yield some records as to the question of if, what, and how that carrier reported the FET. Such records in combination with invoicing may be useful in showing that your company was the Transferee of the FET and did pay it. It may also show that the carrier did not report or remit the FET. If this was the case, speak with a tax attorney about your rights and legal remedies, as recovery of FET credits or refunds will be a more complicated scenario and must be properly preserved. Also I think it is important to remind all distributors seeking FET tax credits or refunds that some limitations exist that may bar recovery under a statute of limitations (SOL). First, you must amend your corporate returns if you did not previously seek the refund or credit of the FET. Businesses generally have a three year period to amend such corporate tax returns. The qualiﬁed reporting periods for FET credits and refunds are the remittance periods between February 28, 2003 and August 1, 2006. This means that if you are going to seek a FET tax credit or refund and it falls beyond the three year amendment period, you are out of luck. Finally, it is important to remember that participants in the prepaid calling and the prepaid wireless industries are only one segment of those who are generally qualiﬁed to seek refund or credits for FET. The tax actually covered, and was assessed by, carriers against a wide array of bundled non-local services. This means that enterprise businesses and individuals are also qualiﬁed for FET tax credits and refunds. How that is computed and how they may be considered to be the Transferee, as opposed to a holder, may be different than what may be applicable to distributors of prepaid cards and wireless services. Therefore, information publicly available on the Internet targeted to these classes of transferees may, or may not, be applicable. The site you referenced in your e-mail is great for businesses and consumers, but, as you indicated, was not very clear as to the niche of prepaid distributors. It is best to work with an Accountant or CPA really versed on telecom, and speciﬁcally the FET, and not blindly ﬁsh for information off the Internet without some parameters. Let the professionals do their jobs, as it can save you both time and aggravation in refund or tax credit for the FET. Good Luck and Success in the Industry. Attorney Edward A. Maldonado is President of the Regnum Group, Inc. and the Maldonado Group. He can be reached at eam@maldonado-group.com. Dear Ed: What is the status on FET (Federal Excise Tax) refunds to prepaid calling card distributors? We are a nationwide distributor of prepaid cards and wireless recharges and are amending our corporate federal tax returns to recover a refund of the FET we believe is owed. My problem is one of proving our payment of the FET. I believe I was charged the FET between 2003 and 2006 but it is not clear on any of the invoices sent to use by various providers. Most of the information that is available on the Internet references Invoices or billing of bundled services as the basis to recover the FET refund. Websites such as www.form-8913.com are speciﬁc to consumers or enterprise businesses and not prepaid card and wireless distributors, like us. Our CPA seems to think that the FET was incorporated into the miscellaneous taxes portion of our invoice by virtue of the amounts charged. It appears that the taxes charged include the 3% FET. How do we ﬁnd out if it was charged, or, if FET was even paid to the IRS by the card provider? No ReFET Dear No ReFET: I think a good starting point for you and your accountant may be to re-review the IRS instructions for Form 8913 as to who qualiﬁes for FET refund. IRS Regulation Section 49.4251-4 treats non-local “Prepaid Telephone Cards” and “Prepaid Cellular Telephones” as bundled services and recognizes that “Transferees” qualify for the refund. Within the Instructions of Form 8913, differences between carriers (who collected and remitted the FET from transferees), the Transferee (the ﬁrst company was not a carrier in fact and also It’s Coming! Are You Ready? Late Summer ‘08 Prepaid long distance. Prepaid wireless. Prepaid payments. One room. Big ideas. Countless connections. Check www.prepaidpressexpo.com for updates http://www.form-8913.com http://www.prepaidpressexpo.com http://www.prepaidpressexpo.com

Table of Contents Feed for the Digital Edition of The Prepaid Press - November 15, 2007

The Prepaid Press - November 15, 2007 Online Wireless Recharge It's a Wrap for Gift Cards Contents GENERAL PREPAID Prepaid 101: Merchandising Regulatory Rundown: Wireless Broadband, LNP, Internet Taxes, and Stored Value Legislation Guest Editorial: Honest Minutes: "The Times They Are A-Changing" 5 Minutes With Daniel Neal, CEO of kajeet The Legal Line Prepaid Wireless Roundup WIRELESS Wireless in Brief 011 Mobile Launches Mobile International Dialing Hop-on Adds GSM Phone to Product Line Virgin Mobile USA Launches New Services kajeet Adds to Handset Line MarketStar Publishes Mobile Phone Usage Study Nokia and Cellfire Team Up Verizon Selects Firethorn iVisionMobile Launches Messaging Platform Sprint Expands "Unlimited by Boost" INTERNATIONAL Spot Rates NOMAD Brings MasterCard EMS to Europe R&M Finds Potential in Africa International in Brief TELECOM & TECHNOLOGY Caveat Emptor When Negotiating IP Licensing T&T in Brief MySpace and Skype Ink Deal Octastic Announces New Media Gateway DSP Pactolus Selected by Global Crossing Tadiran Announces New Loyalty Incentive Program Oblio Telecom Launches New Prepaid Products Total Call Enhances Prepaid Calling Cards PAYMENTS A Gift Card Technology Guide Pinnacle and PaySpot Roll Out POS/Prepaid Solution TIO Networks Announces Membership Program TransFund$ Partners with TruckersB2B AMR Finds Retailers Returning to Main Street Payments in Brief Diebold to Offer Prepaid Gift Card Technology InComm to Sell nFinanSe Discover Cards iVisionMobile Offers Retailers Mobile Payments i2c to Offer Stored Value Webinars Mobilians Starts U.S. Mobile Payments Operation NetSpend Increases Savings Program Interest EXTRAS Classifieds Contact Us Our Advertisers

The Prepaid Press - November 15, 2007

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