The IRS properly assessed AT&T more than $505 million in taxes...
The IRS properly assessed AT&T more than $505 million in taxes from universal service payments made to the company because the funds should be considered income and not capital contributions, a three-judge panel of the 5th U.S. Circuit Court of…
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Appeals in New Orleans ruled last week. AT&T had lost its case on summary judgment at a lower court and appealed, arguing that its money it got from USF was capital contributions that shouldn’t count as gross income for tax purposes. The panel upheld the summary judgment, ruling that under both the relevant statutes and the Supreme Court’s 1973 U.S. v. CB&Q Railroad decision the government’s intentions in handing out the money are determinative. AT&T officials did not respond to a request seeking comment. An FCC spokesman declined to comment. The court’s decision concluded that the transferor didn’t intend the funds to be a contribution to capital, tax expert Rob Willens said. The funds instead were intended to be a supplement to AT&T’s income to compensate it for the lost revenue and increased costs it incurred in serving low-income, high-cost users, he said. Transfer of funds, as the court said, didn’t exhibit the “characteristics” of a contribution to capital as set forth by CB&Q, Willens noted. He said states would also tax these amounts because most, if not all, states use federal taxable income, with certain adjustments, as the tax base.