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The Overland Park-based company says it filed federal income tax returns in those years that erroneously included as taxable income government payments it received from the Universal Service Fund.
The fund helps cover the cost of extending telecommunication services to high-cost rural areas, low-income customers, schools, libraries and rural medical facilities.
Embarq was Sprint's local phone division before it was spun off in May 2006. Sprint Nextel joined Embarq in the lawsuit, filed Wednesday in federal court in Kansas City, Kan., because Embarq was a division of Sprint Nextel during the years in question. Any tax refunds, however, would go solely to Embarq.
Embarq says it determined it should not have paid income taxes on the Universal Service Fund payments -- more than $176 million during the five years in question -- because the payments were non-shareholder contributions to capital. Such contributions must be excluded from taxable income.
The lawsuit alleges that the Internal Revenue Service denied Embarq's request for a refund on June 20, 2007.
In an e-mail message, Debra Peterson, a spokeswoman for Embarq, said the government believed that the money in question should be considered taxable revenue.
"We have been in negotiations with the IRS to resolve this matter, but we have been unable to reach a resolution," she wrote. "As a result, we have filed this action in hopes of prevailing in court."
To reach Dan Margolies, call 816-234-4481 or send e-mail to dmargolies@kcstar.com.
To see more of The Kansas City Star, or to subscribe to the newspaper, go to http://www.kansascity.com. Copyright (c) 2009, The Kansas City Star, Mo. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
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