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As Americans Prepare for 'Tax Day,' Citizens Seek to Stop IRS From Collecting an Illegal Excise Tax

Though Many Courts Have Ruled Telephone Excise Tax is Illegal, IRS Collects it Every Month; Lawsuit Tests Whether 'No Taxation W

WASHINGTON, April 11 /PRNewswire/ -- Individual phone users today petitioned the U.S. District Court for the District of Columbia for an injunction halting the IRS' continuing extraction of a tax that has been found unlawful by the United States Courts of Appeals for the Sixth, Ninth and District of Columbia judicial circuits. Long distance phone customers living in Alabama, the District of Columbia, Florida, Georgia, Kentucky, Michigan, Ohio and Tennessee who live within those federal judicial circuits would immediately benefit, should the court halt the tax collection.

Today's motion asserts that the telephone excise tax routinely paid by millions of Americans every month was never authorized by Congress. The underlying lawsuit, Sloan et al. v. United States of America acting by and through the Internal Revenue Service, filed on March 15, 2006 in the U.S. District Court for the District of Columbia, also seeks monetary restitution for taxpayers and elimination of the tax going forward.

Halt the Tax By the Fourth of July

"By imposing this tax upon citizens without the consent of their elected representatives, the government is violating a fundamental right of all Americans proclaimed by our nation's founders in the Declaration of Independence and guaranteed in the Constitution," explained Jonathan Cuneo of Cuneo Gilbert & LaDuca, LLP, lead counsel for the plaintiffs. "Wouldn't it be great to halt collection of this tax by the Fourth of July?"

Today's petition is filed during the same week when, 231 years ago, the British government repealed the Townsend Act, a series of small import duties imposed upon products American colonists needed to purchase from Great Britain. "Just like the Townsend Act, a small nuisance tax on many everyday items such as paper and tea, the three percent telephone excise tax 'nickles and dimes' people and, like so many other small taxes today, leaves citizens feeling powerless before their government," Mr. Cuneo observed.

Corporations Have Won Relief, But No One Told Individual Taxpayers

Today's citizen action aimed at removing the excise tax brings to mind colonists' frustrations in another regard. "Just as individual American colonists were getting the short end of the stick compared to the powerful people in Great Britain who had access to courts there, so today individual Americans unfairly continue paying this tax even as large corporations have used their resources to win refunds in federal courts," Mr. Cuneo continued.

Among the corporations who have won cases similar to Sloan, et al. and been awarded refunds are AOL, Hewlett Packard, OfficeMax and Honeywell. "The companies that challenged the tax -- and won -- have performed a valuable service," explained Hank Levine of Levine, Blaszak, Block & Boothby, LLP, one of the plaintiffs' lawyers and lead counsel in the majority of taxpayer court victories to date. "But, even as companies have been winning relief from this unauthorized tax, no one told small taxpayers they are being systematically fleeced every month, year in and year out. This lawsuit will give individual Americans justice."

Since at least 1997, according to the complaint, the United States government has violated the United States Constitution by imposing a three percent excise tax unauthorized by Congress upon the long distance telephone charges of tens of millions of Americans. Specifically, plaintiffs seek recovery for taxpayers in the seven affected states and DC of up to $9 billion, a prohibition against further collection of the illegal tax, and other remedies.

Government Never Sought Congressional Authority for Flat Per-Minute-Rate Tax

The statutory authority for taxes levied upon long distance, interstate telephone service was last updated by Congress as part of the Excise Tax Reduction Act of 1965. The three percent excise tax is levied upon toll telephone charges for long distance service as defined in 1965, and applies only to services where the charges for individual calls vary on the basis of both the distance and elapsed time of each individual call. But, many long- distance carriers now charge for calls at a flat per minute rate for dialing anywhere in the nation. AT&T, for instance, abandoned distance and time formulas by 1997 and MCI followed in 2000.

"As technology changed and more telephone services were billed at flat rates, the government never went back to Congress to seek a three percent excise tax on flat long distance service based on elapsed time only," Mr. Cuneo added. "Instead, the government simply imposed the tax, which is small and goes unnoticed by most individuals, who have little recourse but to pay it."

Usurpation of Tax Power by Government

"Every true conservative ought to care about this usurpation by the government of the power to levy taxes that properly resides in our elected Houses of Congress," explained Robert Cynkar of Egan, Fitzpatrick, Malsch & Cynkar, PLLC, a former Assistant Attorney General of the United States during the Reagan Administration and another attorney representing the plaintiffs. " 'No taxation without representation' was our rallying cry in 1776 and it continues to resonate for Americans today."

Professor Charles Tiefer of the University of Baltimore Law School, former Deputy Counsel to the United States House of Representatives from 1984 to 1995, who also represents the plaintiffs, said: "Outraged consumers should also rally around this historic case. Nothing in the long-distance carriers' phone bills discloses to consumers that this tax is illegal or offers the payer any information on how to challenge the bill. Even if individuals knew of the illegal tax, the relatively small amounts of money involved and complexity and cost of trying to recover it means they effectively have no recourse but to pay it."

As an example, the attorneys cite a hypothetical individual whose monthly long distance charge is $15. The three percent excise "tax" collected is a mere 45 cents per month or $5.40 per year. In the aggregate, however, gross revenues generated from interstate long distance service in the United States totaled $53 billion in 2000 and Communications Excise Tax receipts exceeded $1.5 billion that year, according to the complaint.

Lawsuit Embodies Spirit of the Boston Tea Party

"This lawsuit is part of a venerable American tradition of standing up against wrongful taxes collected sneakily because they're small, going back to the days when colonists fought King George III's three-penny tax on tea by throwing the stuff overboard at the Boston Tea Party," says Boston based attorney Christopher Weld of Todd & Weld, LLP. "In crafting our Constitution, the Founding Fathers firmly invested control of taxing authority in the elected Congress of the United States."

For a copy of complaint and other documents, please contact Jonathan Cuneo at 202-789-3960 or Jeff McCord at 540-364-4769.

Cuneo Gilbert & LaDuca, LLP

CONTACT: Jonathan Cuneo of Cuneo Gilbert & LaDuca, LLP, +1-202-789-3960;
or Jeff McCord, of McCord & Associates, +1-540-364-4769, for Cuneo Gilbert &
LaDuca, LLP

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