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In re Worldcom, Inc.

United States Bankruptcy Court, S.D. New York
Mar 27, 2006
Case No. 02-13533 (AJG) (Jointly Administered) (Bankr. S.D.N.Y. Mar. 27, 2006)

Opinion

Case No. 02-13533 (AJG) (Jointly Administered).

March 27, 2006

Marcia L. Goldstein, Esq., Lori R. Fife, Esq., Alfredo R. Pérez, Esq. WEIL, GOTSHAL MANGES LLP, New York, NY, Attorneys for Reorganized Debtors.


NOTICE OF REORGANIZED DEBTORS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO THEIR OBJECTION TO PROOF OF CLAIM NO. 38365 (DEPARTMENT OF TREASURY ADMINISTRATIVE EXPENSE CLAIM)


PLEASE TAKE NOTICE that on March 27, 2006 the Reorganized Debtors filed Proposed Findings of Fact and Conclusions of Law (the "Proposed Findings") with Respect to their Objection to Proof of Claim No. 38365 (Department of Treasury Administrative Expense Claim). A copy of the Proposed Findings is annexed hereto as Exhibit A.

EXHIBIT A

In re : : Chapter 11 Case No. WORLDCOM, INC., et al., : 02-13533 (AJG) : : (Jointly Administered) Reorganized Debtors. :

REORGANIZED DEBTORS' PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW WITH RESPECT TO THEIR OBJECTION TO PROOF OF CLAIM NO. 38365 (DEPARTMENT OF TREASURY ADMINISTRATIVE EXPENSE CLAIM)

On February 1, 2006 and April [11], 2006, the Court held hearings (collectively, the "Hearing") to consider (A) Proof of Claim No. 38365, dated July 2, 2004, which was filed by the Department of Treasury/Internal Revenue Service of the United States of America (the "IRS") as a request for payment of postpetition federal communications excise taxes under section 4251 et. seq. of the Internal Revenue Code and (B) the Reorganized Debtors' Objection to Proof of Claim No. 38365 filed by the IRS, dated August 5, 2004 (the "Objection") [docket no. 12235].

The findings and conclusions set forth herein constitute the Court's findings of fact and conclusions of law pursuant to Fed.R.Bankr.P. 7052, as made applicable to this proceeding by Fed.R.Bankr.P. 9014. To the extent any of the following findings of fact constitute conclusions of law, they are adopted as such. To the extent any of the following conclusions of law constitute findings of fact, they are adopted as such.

I. BACKGROUND

1. At issue is whether the Reorganized Debtors are required to pay federal excise taxes when they purchase a data service called COBRA (central office based remote access) that converts analog data from dial-up computer modems into high-speed data packets suitable for transmission over Internet networks. Although largely decommissioned at this time, the Reorganized Debtors purchased COBRA service from various local exchange carriers ("LECs") to facilitate the exchange of data packets between Internet service providers ("ISPs") who buy access to the Reorganized Debtors' Internet network and the ISPs' customers, who access the Internet using dial-up computer modems ("Dial-up Users").

References herein to the "Reorganized Debtors" shall also include their predecessors in interest that were debtors in these chapter 11 cases.

For ease of reference, the term COBRA services is used herein to refer to all central office-based remote access services that were purchased by the Reorganized Debtors, regardless of whether the vendor of such services may have used another name for the service in the operative agreement between the parties. See generally, Exs. 27-32.

Almost all COBRA service that the Reorganized Debtors purchased at one time has now been replaced by a different networking platform. The transition from COBRA service was substantially completed by March 2005. See 2/1/06 Tran. at 62:3-20.

Capitalized terms used, but not defined, herein shall have the meanings ascribed to them in the Objection. To the extent such capitalized terms are not defined herein or in the Objection, then such terms shall have the meaning ascribed to them in the Reorganized Debtors' Response to the Reply of the United States of America to Reorganized Debtors' Objection to IRS Request for Payment No. 38365 (the "Reorganized Debtors' Response"), dated December 16, 2005 [docket no. 17743].

The Telephone Excise Tax.

2. While Congress enacted the first telephone excise tax more than 100 years ago, the current governing provisions were enacted as part of the Excise Tax Reduction act of 1965, Pub.L. No. 89-44, 79 Stat. 146 (the "1965 Act"). The 1965 Act has been codified at 26 U.S.C. §§ 4251 through 4254 (the "Tax Code").

30 Stat. at 460, Pub.L. No. 55-133 (1898); see also, LOUIS ALAN TALLEY, THE FEDERAL EXCISE TAX ON TELEPHONE SERVICE: A HISTORY 1 (Congressional Research Service 2001), available at http://www.law.umaryland.edu/marshall/crsreports/crsdocuments/ RL30553_01042001.pdf.

3. The 1965 Act imposes a tax on amounts paid for three categories of communications services, namely, local telephone service, toll telephone service, and teletypewriter exchange service. 26 U.S.C. § 4251(a)(1), (b)(1). Each of those services is separately defined in section 4252 of the Tax Code. In particular, section 4252(a) of the Tax Code defines "local telephone service" as:

(1) . . . access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and

(2) any facility or service provided in connection with a service described in (1).

The term `local telephone service' does not include any service which is a `toll telephone service' or a `private communication service' as those terms are defined in subsections (b) and (d).

4. In accordance with the preceding provision, an excise tax is only payable where the purchased service meets all of the following requirements:

(a) provides access to a local telephone system;

(b) provides the privilege of telephonic ( i.e., voice) quality communication;

(c) provides telephonic ( i.e., voice) quality communication with substantially all persons having a telephone; and

(d) is not a private communication service as defined in section 4252(d) of the Tax Code.

Procedural History.

5. On July 2, 2004, the IRS filed Proof of Claim No. 38365 (the "IRS Claim") in the amount of $16,276,440.81 for postpetition excise taxes that it contends are owed by the Reorganized Debtors. On August 5, 2004, the Reorganized Debtors filed their Objection to the IRS Claim asserting that COBRA service is not one of the communications services subject to taxation under the 1965 Act.

6. On January 31, 2006, the Reorganized Debtors filed their Motion for (I) A Determination of Refund Rights Pursuant to Section 505(a) of the Bankruptcy Code and (II) Consolidation of that Determination with the Reorganized Debtors' Objection to Proof of Claim No. 38365 (Department of Treasury Administrative Expense Claim) Pursuant to Section 105 of the Bankruptcy Code and Rules 9014 and 7042 of the Federal Rules of Bankruptcy Procedure (the "Refund Motion") [docket no. 17945]. Pursuant to the Refund Motion, the Reorganized Debtors asserted that they are entitled to a refund of any excise taxes previously paid in connection with their purchase of COBRA service. The Refund Motion is pending consideration by the Court.

7. In accordance with the Court's January 31, 2006 Scheduling Order, the Hearings on liability and damages with respect to the IRS Claim have been bifurcated. Accordingly, the Court has considered the evidence and argument presented by the parties at the Hearing solely for purposes of determining whether the Reorganized Debtors are liable for excise taxes in connection with their purchases of COBRA services. The parties' respective rights regarding the amount, if any, of such tax liability have been reserved for consideration by the Court at a later date.

Summary of the Dispute.

8. Much of the evidence introduced by the Reorganized Debtors at the Hearing was undisputed. For example, the government has not disputed that (i) the LECs own all of the equipment used to deliver COBRA service to the Reorganized Debtors, (ii) the service provides the Reorganized Debtors with high-speed data packets that are suitable only for communications over the Internet, and (iii) COBRA service lacks the common functions associated with local telephone service, such as a dial tone, a line or jack for plugging in a telephone, the ability to initiate telephone calls to other persons within a local telephone system, and the ability to receive telephone calls from other persons.

See, e.g., 2/1/06 Tran. at 168:23-169:6, 197:5-199:8.

9. Instead, the government first argues that even though COBRA service provides the Reorganized Debtors with Internet data packets instead of the ability to make or receive telephone calls, the service should nonetheless be taxed because Dial-up Users have the "privilege of telephonic quality communications" through the use of their computer modems which connect to the LECs' network access servers in the COBRA system. The Reorganized Debtors, in turn, contend that the fact that Dial-up Users may have the privilege of telephonic quality communications is entirely irrelevant to whether the Reorganized Debtors should be taxed under section 4252 because the statute requires that the Reorganized Debtors ( i.e., the person paying for COBRA service) must have the privilege of telephonic quality communications before the tax may be properly assessed. See 26 U.S.C. § 4251(a)(2) (stating that the tax "shall be paid by the person paying for such services.") Thus, the Reorganized Debtors contend that the government cannot impute the Dial-up Users' privilege of telephonic quality communications to the Reorganized Debtors.

Surreply of the United States of America to the Reorganized Debtors' Objection to IRS Request for Payment No. 38365, dated January 26, 2006 (the "IRS Surreply") [docket no. 17864], at ¶ 3.

10. Second, the government maintains that because COBRA service is provided "in connection with a local telephone system," the Reorganized Debtors' use of COBRA services is subject to taxation under section 4252(a)(2). The Reorganized Debtors, in turn, contend that the government has misconstrued the plain language of the statute. The statute does not state that a "facility or service provided in connection with a local telephone system" is subject to taxation. Instead, it states that "a facility or service provided in connection with a service described in paragraph (1)," is subject to taxation and thus, liability under section 4252(a)(1) is a condition precedent to any liability under section 4252(a)(2). Accordingly, the Reorganized Debtors contend that because they did not purchase the service described in section 4252(a)(1), the provisions of section 4252(a)(2) do not apply.

Id. at ¶ 3.

11. Third, the government argues that the Reorganized Debtors' inability to use traditional telephones with COBRA service is "neither relevant nor material to the excise tax analysis." The government reasons that because precedent establishes that the excise tax applies where a taxpayer elects to connect modems to one another, the excise tax likewise applies to COBRA service because the Reorganized Debtors have elected to connect modems to one another with COBRA service. The Reorganized Debtors, in turn, contend that the government has misconstrued existing precedent and that the present facts are markedly different from those involving a taxpayer's election to either use, or not use, a regular telephone line for dial-up modem services.

Id. at ¶¶ 4, 28-36 (relying on Revenue Ruling 79-245).

12. Fourth, the government argues that the Court should ignore the nature of the services actually purchased by the Reorganized Debtors because even if COBRA service is not itself subject to the tax, other services that could have been purchased by the Reorganized Debtors are subject to the tax. Specifically, the government urges that even though the LECs did not configure their equipment in such a way as to allow voice quality calls, because the COBRA system is capable of such telephonic quality communications (either through reconfiguration of the equipment used to deliver the service, or through the use of computer-to-computer voice over Internet technologies that could be separately purchased by Dial-up Users), the Reorganized Debtors are subject to the tax. The Reorganized Debtors, in turn, argue that (a) they do not have the privilege of reconfiguring the LECs' equipment and facilities, (b) the antiquated equipment used with COBRA service did not operate at speeds that were capable of providing voice quality communications, (c) the statute requires communications with telephones rather than computers, and (d) in any event, section 4251(a)(1) of the 1965 Act requires taxation only where an entity has actually purchased — not merely could have purchased — local telephone service.

2/1/06 Tran. at 198:11-199:3.

The IRS Surreply at ¶ 5, 37, 43-46, 54-60.

13. Finally, although the government does not expressly argue that COBRA service is not a "private communication service," the Reorganized Debtors do argue as much. In particular, the Reorganized Debtors urge that even if COBRA service provides the "privilege of telephonic quality communications," it is still not subject to taxation because it is a "private communication service," which is expressly excluded from the definition of local telephone service under the 1965 Act. The Reorganized Debtors have presented testimony establishing that COBRA service is a "private communication service."

Evidence and Matters Considered by the Court in Connection with the Objection.

14. The Court has reviewed and considered the IRS Claim, the Reorganized Debtors' Objection to the IRS Claim, all other pleadings submitted by the parties, and all evidence adduced and admitted at the Hearing, including (i) the live testimony of Mr. John Anderson ("Mr. Anderson"), the Reorganized Debtors' expert witness, (ii) the live testimony of Dr. Michael Hills ("Dr. Hills"), the IRS's expert witness, and (iii) the trial exhibits admitted into evidence (Trial Exs. 1-25 and 27-31). The Court is also cognizant of the entire record in these chapter 11 cases, all of which the Court hereby takes judicial notice.

These pleadings include: (i) the Reply of the United States of America to Reorganized Debtors' Objection to IRS Request for Payment No. 38365, dated September 27, 2005 (the "IRS Reply") [docket no. 17489]; (ii) the Reorganized Debtors' Response; (iii) the IRS Surreply; and (iv) the Refund Motion.

Summary of Conclusions.

15. Based upon the Court's consideration of the evidence and matters identified above, its evaluation of the credibility and persuasiveness of the parties' respective witnesses, and the findings of fact and conclusions of law set forth below, the Court concludes that the Reorganized Debtors are not liable for federal excise tax under 26 U.S.C. § 4251 et. seq. in connection with their purchase of COBRA service. The Court will enter an order disallowing and expunging the IRS Claim, in its entirety, and herein disposes of all claims or proofs of claim that have been, or that could have been, asserted by the IRS for any unpaid excise taxes related to the Reorganized Debtors' purchase of COBRA service. Because the Court concludes that the Reorganized Debtors are not so liable, the Court will determine the amount of any refund owed to the Reorganized Debtors at a later date in connection with the Refund Motion.

II. FINDINGS OF FACT

Findings of Fact Relating to the Technical Capabilities of COBRA Service.

16. The Reorganized Debtors are in the business of building Internet networks and selling access to those networks to Internet service providers ("ISPs"). These ISPs use the Reorganized Debtors' Internet networks to provide Internet services to their customers (the Dial-up Users), who access the Internet using dial-up computer modems.

See, e.g., Exs. 2-3, 20, 2/1/06 Tran. at 58:21-60:16, 66:18-67:20.

17. In connection with these operations, the Reorganized Debtors paid local exchange carriers for a data aggregation and conversion service known as central office based remote access (COBRA) service. The Reorganized Debtors purchased COBRA service from these LECs pursuant to written contracts (the "COBRA Contracts"). As Mr. Anderson testified during the Hearing, "COBRA service is a service provided by the incumbent LECs that aggregates dial-up data and puts it into an internet protocol and hands it off to MCI as a high-speed datastream. . . . It is high-speed data, IP or TCP/IP, which is basically known as your internet data."

The COBRA Contracts contain confidential and proprietary commercial information.

Accordingly, these agreements were submitted for in camera review at the Hearing and were admitted into evidence as Exhibits 27-32. In order to preserve the confidentiality of these Exhibits, the counterparties to the COBRA Contracts are not identified in these Findings of Fact and Conclusions of Law.

2/1/06 Tran. at 66:10-14, 67:23-25.

18. These high-speed Internet protocol ("TCP/IP") data packets are transmitted to the Reorganized Debtors by means of either frame relay or a router. The Reorganized Debtors connect their network equipment to the frame relay card or the router so that they can deliver the high-speed data packets to the appropriate ISP over their Internet network. This, in turn, allows the ISPs' customers to access the Internet.

See, e.g., Exs. 2-3; Ex. 27 at DOJ 00012; Ex. 28 at DOJ 00126; Ex. 29 at DOJ 00035; Ex. 30 at DOJ 00058; Ex. 31 at DOJ 00109; Ex. 32 at DOJ 00191, 00198; 2/1/06 Tran. at 66:8-67:25, 69:14-70:18.

19. The LECs deliver high-speed data to the Reorganized Debtors in TCP/IP format using network access servers ("NAS") that are deployed in the LECs' central offices. The LECs use a digital signal processor ("DSP") card located in the NAS to aggregate and convert the analog computer data exchanged between the Dial-up Users and the LEC. (i) The Reorganized Debtors were not able to Reconfigure the COBRA Equipment and Facilities.

See, e.g., Exs. 2-3; Ex. 27 at DOJ 00012; Ex. 28 at DOJ 00126; Ex. 29 at DOJ 00035; Ex. 30 at DOJ 00058; Ex. 31 at DOJ 00109; Ex. 32 at DOJ 00191, 00198; 2/1/06 Tran. at 66:8-67:25, 69:14-70:18.

20. The terms on which COBRA service has been provided to the Reorganized Debtors are defined by the LECs in the COBRA Contracts and related federal tariffs. The COBRA Contracts specify, among other things, (i) the obligations of the LECs in delivering COBRA service, (ii) the applicable charges for the service, (iii) the equipment that the LECs agree to use in delivering the service, (iv) where the LECs will make the service available, and (v) the functions of the service.

See generally Exs. 27-32; see also Ex. 27 at DOJ 00002, DOJ 00012-00018 (describing the terms of the LEC's tariff).

21. In accordance with the COBRA Contracts, the LECs owned all equipment used to deliver COBRA service. That equipment (including the NAS and DSP cards) was located in the LECs' central offices and the Reorganized Debtors did not have physical access to such equipment.

See, e.g., Ex. 27 at DOJ 00012; Ex. 28 at DOJ 00126, 00128; Ex. 29 at DOJ 00035; Ex. 30 at DOJ 00058; Ex. 31 at DOJ 00097, 00100; Ex. 32 at DOJ 00144; 2/1/06 Tran. at 68:2-5, 80:22-81:2, 82:24-83:4.

See Exs. 2-3; 2/1/06 Tran. at 77:9-20.

22. The demarcation point between equipment the LECs used to deliver COBRA services and the Reorganized Debtors' network was at the connection to the output port of the NAS. The Reorganized Debtors had only remote access to the NAS equipment using a high-speed point-to-point data private line. Although the Reorganized Debtors could remotely disable modems within the COBRA system that had technical problems, they had no authority or ability to make physical modifications to the COBRA sites or equipment. As Mr. Anderson testified, that equipment "was behind central office's locked doors." In addition, because the Reorganized Debtors accessed COBRA service at the connection of the NAS output port, the Reorganized Debtors had no access to the LECs' local telephone systems.

See, e.g., Exs. 2-3; Ex. 27 at DOJ 00012; Ex. 28 at DOJ 00126, 00128; Ex. 29 at DOJ 00035-36; Ex. 30 at DOJ 00058-59; Ex. 31 at DOJ 00100; Ex. 32 at DOJ 00159, 00202; 2/1/06 Tran. at 72:24-73:12, 76:2-13, 79:7-81:2, 82:16-23, 87:5-19, 92:2-6.

2/1/06 Tran. at 77:19-20.

See, e.g., Exs. 2-3; 2/1/06 Tran. at 72:24-73:12, 76:2-13, 79:7-81:2, 82:16-23, 87:5-12, 92:2-6, 122:23-123:8, 123:14-18; see also Ex. 28 at DOJ 00127 (specifying that the Reorganized Debtors only had access to the egress port of the NAS); Ex. 29 at DOJ 00039 (same); Ex. 30 at DOJ 00062 (same); Ex. 32 at DOJ 00159 (referring to interconnection of the egress port with an egress circuit).

23. Further, replacing the equipment that the LECs used to provide COBRA service with a completely different system architecture would fundamentally alter the service the LECs were providing and the service provided would no longer be COBRA service. (ii) Dial-up Users Purchase Separate and Distinct Services from the LECs.

2/1/06 Tran. at 87:5-21, 116:13-15, 131:9-13, 166:9-167:18, 199:9-25.

24. Dial-up Users access the Internet using a computer, a dial-up modem, and a telephone line that the Dial-up User separately purchases from a LEC. Using the telephone line, a Dial-up User's modem sends analog data through the public switch telephone network (the "PSTN") to a switch at the LEC's central office. The government's expert witness, Dr. Hills, testified that COBRA service does not include the Dial-up User's calls into the PSTN or the LECs' transmission of those communications. Dr. Hills also testified that the Dial-up Users, not the Reorganized Debtors, pay for the telephone lines that LECs use to transmit their communications. As such, if any excise tax is due in connection with Dial-up Users' access to the local telephone system, that tax is owed by Dial-up Users and not the Reorganized Debtors.

See, e.g., Ex. 2, 24; 2/1/06 Tran. at 66:18-67:20, 129:4-14, 187:10-22.

2/1/06 Tran. at 187:10-18.

2/1/06 Tran. at 187:19-22.

Findings of Fact Relating to Local Telephone Service.

25. As understood in the telecommunications industry, local telephone service allows one subscriber to converse with other subscribers within a geographically bounded area. The subscribers to the service must have the ability to talk to each other if the service is to qualify as a local telephone service. (i) COBRA Service is not Local Telephone Service Because it is Incapable of Delivering Telephonic Quality Communications.

2/1/06 Tran. at 73:18-23.

2/1/06 Tran. at 73:18-74:3.

26. The parties' witnesses largely agreed on their understanding of telephonic quality communications. Dr. Hills testified that a telephonic quality communication "is defined as the set of characteristics that allow a pair of people to be able to conduct a conversation and hear each other satisfactorily." Similarly, Mr. Anderson testified that a telephonic quality communication "is an ability to communicate between . . . two individuals, a telephone call."

2/1/06 Tran. at 154:13-17.

2/1/06 Tran. at 68:20-23.

27. As explained at the Hearing, with traditional telephone services, LECs carry signals across the public switched telephone network using time-division multiplexing ("TDM") technology and TDM switches, pursuant to which they create a digital representation of the human voice. Due to the complexity of the human voice, this digital voice representation can only be transmitted to other persons using a minimum bandwidth of 64 kilobytes per second of digitized data. COBRA service was incapable of delivering digitized data at 64 kilobytes per second because, as Mr. Anderson explained, "the COBRA platform was dial-up data or low speed data on input, [and] a platform at low speed . . . is not capable of carrying voice." Mr. Anderson further explained that because COBRA service was designed to process data from these low-speed dial-up computer modems operating at approximately 24 to 33 kilobytes per second, rather than the required 64 kilobytes per second, COBRA service would degrade the quality of any voice communication to the point where it would be unintelligible. It was therefore technologically impossible to use COBRA service for telephonic quality communications. As Mr. Anderson testified,

2/1/06 Tran. at 78:22-79:6, 83:11-86:12, 97:15-100:10.

2/1/06 Tran. at 83:18-21.

2/1/06 Tran. at 74:4-12, 83:11-87:4, 133:3-135:22.

you can pass packets at a slow speed, and it will get to the other end, but when it puts the packets back together to represent the voice, there is not enough data to really give you a clear voice. Like I said, you wouldn't be able to understand it. It would be garbled or it would be noise.

2/1/06 Tran. at 135:12-18.

28. Consistent with Mr. Anderson's testimony, Dr. Hills also conceded several facts that indicate that COBRA service was not capable of delivering a telephonic quality communication, including the following:

• At the output port of the NAS, COBRA service provided the Reorganized Debtors with a high-speed datastream instead of the TDM signals that would be compatible with the public switched telephone network.

2/1/06 Tran. at 197:5-10.

• The LECs did not design COBRA service for a telephone user to dial up and access the COBRA system.

2/1/06 Tran. at 168:23-169:6, 197:23-198:6.

• The LECs did not configure the components used to deliver COBRA service in way that allowed voice quality calls.

2/1/06 Tran. at 198:11-199:3.

• Any use of the COBRA platform for telephonic quality communications would require the implementation of an entirely different technology known as Voice over Internet Protocol ("VoIP").

2/1/06 Tran. at 182:12-18.

• The systems used by the LECs to deliver COBRA service did not contain the hardware and software required for VoIP technology.

2/1/06 Tran. at 185:15-22. VoIP is a recent technological development that allows telephone calls to be made between the Internet and the PSTN using specific hardware (such as a VoIP gateway and SIP server) and software. COBRA services use outdated, antiquated equipment and lack these necessary components. For example, the LECs installed equipment manufactured by either Lucent Technologies or 3Com on the COBRA service NAS. See Ex. 3; 2/1/06 Tran. at 69:16-70:18. With a Lucent configuration, COBRA service used card part numbers TNT-SL4-8MODV3-S-C and TNT-SL-HLDC2. See Ex. 27 at DOJ 00245; Ex. 29 at DOJ 00246. According to the manufacturer, these cards cannot support voice communications over an Internet protocol. See Ex. 4 (stating that only parts TNT-SL-ADI-C and APX8-SL-96DSP support VoIP); see also Ex. 12 at DOJ 00247 (stating same). Further, voice services on a Lucent platform require Ethernet connections. Ex. 17 at DOJ 00252. The Lucent hardware used with COBRA service is frame relay (FR). See Ex. 3; Ex. 28 at DOJ 00178; Ex. 29 at DOJ 00246; 2/1/06 Tran. at 69:16-70:18. Similarly, the 3Com Commworks TCH 1000 router connections used with COBRA services do not support the origination and termination of telephonic quality communications. For voice communications, 3Com requires an EdgeServer Pro NAC line card and an Edge server NAC line card. See Ex. 6 at p. 17-18. The COBRA hardware configuration used by the LECs lacked the EdgeServer Pro NAC line card or the Edge server NAC line card. See, e.g., Ex. 27 at DOJ 00235; Ex. 28 at DOJ 00188; Ex. 29 at DOJ 00234, Ex. 30 at DOJ 00233. In addition, the current DSP cards that can be used in connection with a VoIP service did not even exist at the time that the LECs began offering COBRA service. As a result, COBRA service was not a VoIP service and was technologically incapable of delivering telephonic quality communications, including VoIP. See Ex. 23; 2/1/06 Tran. at 92:7-96:21, 133:3-135:22.

29. Although Dr. Hills made these concessions, he also testified that the COBRA system could act as a conduit for data packets representing a voice delivered from one Dial-up User's computer to another computer on the Internet. According to Dr. Hills, these voice packets could be transmitted through the COBRA system if the Dial-up Users separately purchased computer-to-computer voice services by connecting to Internet sites that host those services. Dr. Hills suggested that such services were offered by companies such as Skype. If the Dial-up User purchased the Skype service, the host Internet site could then transmit that call to another user of computer-to-computer voice services.

2/1/06 Tran. at 170:22-172:25, 185:15-23.

30. While Dr. Hills testimony suggests that a Skype subscriber could communicate with another Skype subscriber, this suggestion does not further the government's case because the Tax Code requires that the Reorganized Debtors ( i.e. the person purportedly paying for "local telephone service") must have the privilege of telephonic quality communications if they are to be taxed. The fact that a Skype subscriber might have the ability to communicate with another Skype subscriber, therefore, does not provide a basis for taxing the Reorganized Debtors. In short, because the Tax Code requires that the person paying for "local telephone service" must have the privilege of telephonic quality communication with substantially all persons having a telephone, and Dr. Hills's testimony does not establish that the use of the Skype service in any way entitled the Reorganized Debtors to such privilege, the government's argument must fail.

31. Moreover, even if the Court were to accept Dr. Hills's testimony that voice quality communications could be generated in conjunction with the use of another technology or service (such as Skype), there is no evidence that the Reorganized Debtors ever purchased an ancillary service so as to obtain (or be capable of obtaining) such a voice quality communication.

32. Additionally, and most importantly, this Court is persuaded by Mr. Anderson's very credible testimony that the Reorganized Debtors could not utilize a service such as Skype to communicate with another Skype subscriber in a manner that would result in voice quality communication because the COBRA service is technologically incapable of supporting such communications. See paragraph 27 supra.

33. Finally, when Dr. Hills was asked whether these technologies were commercially available in 2002, he answered: "I don't know the exact dates." As such, there is no evidence that a technology was commercially available during the relevant time period that would have enabled a telephonic quality computer-to-computer voice communication over the COBRA system.

2/1/06 Tran. at 204:16-18.

(ii) COBRA Service did not Provide the Reorganized Debtors with the Ability to Communicate with Substantially All Persons Having Telephones in the Local Telephone System.

34. As Mr. Anderson testified, COBRA service does not provide the Reorganized Debtors with the ability to communicate with substantially all persons having telephones within the local telephone system. Indeed, communications with substantially all persons having telephones cannot be achieved with COBRA service for several reasons, including:

2/1/06 Tran. at 88:9-89:6.

• No dial tone is provided with COBRA service that would allow the Reorganized Debtors to originate telephone calls to substantially all persons having telephones.

• The Reorganized Debtors cannot receive a telephone call with COBRA service from any person having a telephone.

• There is no telephone connection with COBRA service because COBRA service only provides access to a high-speed data line and it is impossible to plug a telephone into a high-speed data line.

• The public switched telephone network requires the use of TDM protocols and TDM switches, but COBRA service provides the Reorganized Debtors with high-speed Internet data in the TCP/IP protocol. High-speed data in TCP/IP format is not suitable for communications with telephones or the public switched telephone network.

• It is impossible to plug a telephone into the output port of the NAS because the NAS output port has different dimensions than a telephone jack.

See, e.g., 2/1/06 Tran. at 74:4-76:23, 78:18-79:6, 81:3-83:10, 89:18-90:19, 187:23-188:3.

35. The lines that the LECs used to connect a Dial-up User to the COBRA equipment are Direct Inward Dial ("DID") only. DID lines allow the LEC to receive calls from the PSTN, but they do not provide a dial tone for making outgoing telephone calls. Consequently, the COBRA equipment used by the LECs does not allow for dialing out to the PSTN. Indeed, if a telephone user dialed a number associated with the COBRA service equipment, the caller would hear unintelligible noise until the circuit was disconnected. COBRA service simply does not allow the Reorganized Debtors to make a telephone call to anyone having a telephone.

Ex. 28 at DOJ 00126; Ex. 29 at DOJ 00035; Ex. 30 at DOJ 00058; Ex. 32 at DOJ 00194; 2/1/06 Tran. at 76:14-20, 89:18-90:19, 187:23-188:3.

Dr. Hills admitted that if persons having telephones called a number associated with the COBRA system, they would hear "an annoying screech" and the COBRA equipment would disconnect the call. See 2/1/06 Tran. at 168:23-169:6; see also 100:20-103:15.

36. Further, if the Court were to assume (as Dr. Hills has urged) that computer-to-computer voice services had some bearing on the outcome of this dispute, the Court further finds as follows:

• Substantially all persons having telephone or radio telephone stations in a local telephone system subscribe to a traditional telephone service on the PSTN. Accordingly, the right to communicate with only those persons who have subscribed to a computer-to-computer voice service like Skype would not provide communications with substantially all persons having telephone or radio telephone stations in a local telephone system.

2/1/06 Tran. at 98:4-7.

• Computer-to-computer voice services require the use of a computer and, accordingly, do not provide a communication with persons having telephones.

2/1/06 Tran. at 134:10-17.

Findings of Fact Relating to Private Communication Service: the Reorganized Debtors' Exclusive Use of, and Separate Charge for, COBRA Service.

37. At the Hearing, Mr. Anderson testified that the NAS "converts the data that is coming from the end user's PC to packets and aggregates it with other data and puts it on this high-speed connection which MCI plugs into which is labeled `frame relay.'" When asked whether this service entitles the Reorganized Debtors to the exclusive use of any communication channel or groups of channels, Mr. Anderson testified that the COBRA platform was dedicated to the Reorganized Debtors' exclusive use, and that the Reorganized Debtors had exclusive use of (and access to) the data channels on the NAS. The government did not controvert that testimony, nor did it offer any rebuttal evidence. Consequently, this Court accepts, and hereby finds, that no other entity had the use of, or access to, any channels or groups of channels on the NAS.

2/1/06 Tran. at 67:13-17 (describing Ex. 2).

2/1/06 Tran. at 90:20-92:6.

38. Further, the government did not controvert or rebut Mr. Anderson's testimony that the Reorganized Debtors are separately charged each month for COBRA service. As the COBRA Contracts stipulate, these charges are incurred on a per port basis.

Ex. 27 at DOJ 00014-15; Ex. 28 at DOJ 00127; Ex. 29 at DOJ 00038-40; Ex. 30 at DOJ 00061-62; Ex. 31 at DOJ 00101-02; Ex. 32 at DOJ 00159; 2/1/06 Tran. at 91:18-25,124:14-21.

III. CONCLUSIONS OF LAW

Conclusions Regarding Jurisdiction

39. The Court has subject matter jurisdiction over these cases under 28 U.S.C. §§ 157(a) and 1334(b) and under the July 10, 1984 "Standing Order of Referral of Cases to Bankruptcy Judges" of the United States District Court for the Southern District of New York (Ward, Acting C.J). This is a core matter under 28 U.S.C. § 157(b)(2)(A), (B), (C) and/or (O).

Conclusions Regarding Notice and Due Process

40. The Reorganized Debtors have satisfied all procedural and due process requirements with regard to the Objection. Due and proper notice and opportunity to be heard have been given as to the Objection and the relief requested therein, and no other or further notice is required.

Conclusions Regarding the 1965 Act

41. The 1965 Act imposes a tax on "amounts paid for communications services." 26 U.S.C. § 4251(a)(1). The term "communications services" means (i) local telephone service, (ii) toll telephone service, and (iii) teletypewriter exchange service. 26 U.S.C. § 4251 (b)(1). The tax imposed by this statute "shall be paid by the person paying for such services." 26 U.S.C. § 4251(a)(2).

42. The terms "local telephone service," "toll telephone service," and "teletypewriter exchange service," are defined in sections 4252(a), (b), and (c) of the Tax Code, respectively. In particular, "local telephone service" is defined as:

(1) . . . access to a local telephone system, and the privilege of telephonic quality communication with substantially all persons having telephone or radio telephone stations constituting a part of such local telephone system, and

(2) any facility or service provided in connection with a service described in (1).

The term `local telephone service' does not include any service which is a `toll telephone service' or a `private communication service' as those terms are defined in subsections (b) and (d).

26 U.S.C. § 4252(a).

Conclusions Regarding Interpretation of the Statute

43. When construing a statute, "the preeminent canon of statutory interpretation requires us to `presume that [the] legislature says in a statute what it means and means in a statute what it says there.'" BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004) (alteration in original) (quoting Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992)). Thus, this Court must begin, and end, its analysis with the language of the statutory text if that text is unambiguous. See Am. Bankers Ins. Group v. United States, 408 F.3d 1328, 1332 (11th Cir. 2005) (citing BedRoc Ltd., LLC v. United States, 541 U.S. 176, 183 (2004)). Further, the Court must give the words used in the statute "their ordinary, plain meaning unless defined otherwise." Id. When the statute itself provides a "definition which declares what a term `means' . . . [it] excludes any meaning that is not stated." Colautti v. Franklin, 439 U.S. 379, 393 n. 10 (1979).

44. Moreover, where the statute at issue concerns a federal tax, the language used by the legislature "should not be extended by implication to reach other matters." America Online v. United States, 64 Fed. Cl. 571, 576 (2005) (citing Gould v. Gould, 245 U.S. 151, 153 (1917)). If any doubt exists as to the construction of a tax statute, "the doubt should be resolved in favor of the taxpayer." Hassett v. Welch, 303 U.S. 303, 314 (1938) (footnote omitted); see also Trans-Lux Corp., 696 F.2d 963, 968 (Fed. Cir. 1982) (stating that any doubts about the taxability of communications services under the 1965 Act are to be resolved in favor of the taxpayer); Western Elec. Co. v. United States, 564 F.2d 53, 66 (Ct.Cl. 1977) (same).

Conclusions Regarding Application of the 1965 Act to the Pending Facts

45. The Court concludes that COBRA service is not a "local telephone service" under section 4252(a) of the Tax Code because COBRA service did not provide the Reorganized Debtors with the privilege of telephonic quality communications with substantially all persons having telephone or radio telephone stations constituting a part of the local telephone system. Alternatively, even if COBRA service did provide the Reorganized Debtors with such a privilege, the Court nonetheless concludes that COBRA service is not "local telephone service" because it falls within the definition of a "private communication service" under section 4252(d) of the Tax Code.

A. COBRA Service is not a Local Telephone Service Because it did not Provide the Reorganized Debtors with the Privilege of Telephonic Quality Communication.

46. In order to impose an excise tax on local telephone service, the subscriber must have the privilege of telephonic quality communications with substantially all persons who have telephones in the local telephone system.

47. In Comdata Network, Inc. v. United States, 21 Cl. Ct. 128 (1990), the court addressed whether a taxpayer that purchased WATS service (a form of toll telephone service) had the privilege of telephonic quality communications with all or a substantial portion of the persons having telephones even though the taxpayer had implemented a number of security measures that limited its use of that service to calls between its service centers and its administrative office. Id. at 129-30. The court determined that: (i) WATS service was a toll telephone service within the meaning of the statute ( id. at 130); and (ii) the excise tax applied under section 4252(b)(2) irrespective of the fact that the taxpayer elected to restrict its use of the WATS service ( i.e., a "self-imposed limitation"), rather than using it to access all or a substantial portion of the persons having telephones outside of the local telephone system area. Id. The court reasoned that the tax applied because the taxpayer had the "privilege" of using a WATS service to communicate with all or a substantial portion of the persons having telephones outside the local telephone system area even though it elected not to actually exercise that privilege. Id. at 131. Despite this, the court nonetheless concluded that there would be a critical difference in its holding if the service purchased was "inherently incapable of being used [to communicate with all or a substantial portion of the persons having telephones outside the local telephone system area]." Id. at 131.

In one IRS proceeding, a business paid charges for two regular telephone lines, one that it used for telephone communications, and another that it used with its computer modems to store, merge, and calculate data according to programmed instructions received over the telephone network from terminals at other locations. Rev. Rul. 79-245, 1979-2 C.B. 380. The IRS contended that, "by plugging in a regularly [ sic] telephone set, if it so chooses, it may exercise the privilege of telephonic (voice) quality communication with substantially all persons having telephones in the local system. . . ." Id. Accordingly, the IRS ruled that telephone service was subject to tax under section 4252(a) even if the subscriber elected not to use it to make telephone calls. This ruling is consistent with Comdata in requiring that there be: (1) the right to plug in a regular telephone set; and (2) the right to voice quality communications with substantially all other telephones, before imposing any excise tax.

48. The facts before this Court are inapposite to those addressed in Comdata (and Revenue Ruling 79-245), because COBRA service is inherently incapable of being used for telephone service, and does not allow the Reorganized Debtors to elect or not to elect to plug into a telephone jack and thereby access voice quality communications with substantially all other telephones in the local system. Indeed, COBRA service:

a) does not allow the Reorganized Debtors to make or receive telephone calls;

b) uses antiquated equipment that operates at speeds below the threshold required for telephonic quality communications;

c) does not provide the hardware and software required for voice over Internet protocol communication; and

d) delivers only an Internet protocol datastream that is incompatible with telephones.

Based on these findings, the Court concludes that COBRA service did not provide the Reorganized Debtors with the privilege of telephonic quality communications with substantially all persons having telephones in the local telephone system, and as such, Comdata and Revenue Ruling 79-245 are inapposite.

49. Consistent with this finding, the IRS has ruled that where the service at issue does not offer the taxpayer the right to plug into a telephone jack or communicate with other persons having telephones, no local telephone service exists and the excise tax does not apply. For instance, where a communications company furnished one-way messages over regular telephone facilities to radio receivers or beepers, those services were found not to have provided the subscribers with "local telephone service" as defined in section 4252(a) of the Tax Code. Rev. Rul. 74-617, 1974-2 C.B. 365. The IRS reasoned that beeper service did not provide the privilege of telephonic quality communications because while the subscriber could receive data messages and signals, it could not plug into a regular telephone jack or receive voice quality communications from substantially all telephones in a local system. Accordingly, the IRS determined that it was not local telephone service.

50. Despite the foregoing, the IRS argues that the Reorganized Debtors are nonetheless subject to the excise tax because (i) Dial-up Users use a voice quality path to connect their computer modems to the LEC's network access server, (ii) COBRA service is a facility "provided in connection with a local telephone system," and (iii) the LECs' current configuration of the COBRA system amounts to a self-imposed limitation (by the Reorganized Debtors) on its use. As counsel for the IRS argued at the Hearing, "[u]nder Comdata, the COBRA system is taxable, because its modems and PRIs (primary rate interface lines) have telephonic quality capability, regardless of whether they are used for traditional voice calls."

See IRS Surreply at ¶¶ 2-5, 43-46.

2/1/06 Tran. at 43:2-6 (parenthetical added).

51. The government's arguments lack merit. First, although the government states that the Dial-up Users have the privilege of telephonic quality communication as a result of their access to the LECs' local telephone system, this fact is irrelevant to whether the Reorganized Debtors themselves have the privilege of telephonic quality communications. The Tax Code plainly requires that the Reorganized Debtors themselves ( i.e., the person paying for a local telephone service) must have the privilege of telephonic quality communications. Because there is no basis in the statute for imputing the Dial-up Users' privilege of telephonic quality communications to the Reorganized Debtors, the fact that an entity other than the Reorganized Debtors may have the privilege of telephonic quality communications is entirely irrelevant to whether the tax is applicable to the Reorganized Debtors.

52. Second, while the government suggests that COBRA service is taxable because it is a facility "provided in connection with a local telephone system," section 4252(a)(2) of the Tax Code does not in fact state that a facility provided in connection with a local telephone system must be taxed. Instead, it states that "a facility or service provided in connection with a service described in paragraph (1)," is subject to taxation and thus, liability under section 4252(a)(1) is a condition precedent to any liability under section 4252(a)(2). Because the pending facts amply demonstrate that COBRA service is not a "service" described in section 4252(a)(1) of the Tax Code, the Reorganized Debtors are not subject to taxation.

53. Third, even though the IRS concedes that COBRA service does not provide the right to make or receive ordinary telephone calls, it nonetheless maintains that the Reorganized Debtors have erected "self-imposed limitations" on the use of the COBRA system which, pursuant to Comdata and Revenue Ruling 79-245, subject them to the federal excise tax. Notwithstanding this contention, the government has offered no evidence that the Reorganized Debtors implemented any self-imposed procedures or systems to limit the use of COBRA service beyond the inherent limitations of the service actually purchased from the LECs. Moreover, the record is bereft of any evidence that the Reorganized Debtors simply unplugged their telephone in order to avoid using COBRA service for telephone calls. And unlike in Comdata, where the court found that it was "virtually self-evident" that ordinary WATS service was a toll telephone service under section 4252(b)(2), and that Comdata had the ability to make a toll telephone call to all or a substantial portion of persons having telephones outside the local telephone system area if it elected to do so, the present case is entirely distinguishable because the Reorganized Debtors have not simply elected to avoid using the COBRA service to make telephone calls to substantially all persons having telephones in the local telephone system; rather, COBRA service is simply incapable of providing the Reorganized Debtors with the ability, right, or privilege to make such telephone calls. Indeed, the only evidence before this Court indicates that the Reorganized Debtors (i) could not directly use COBRA service for any telephonic quality communications; and (ii) could not reconfigure or alter COBRA service into a service that would be capable of telephonic quality communications because the capabilities of such service are controlled by the LECs that sell the service. Thus, the Court cannot conclude that any limitations on the Reorganized Debtors' use of the COBRA service have been "self-imposed."

The Comdata court explained that WATS "is a service which allows the user to both initiate and receive (at no cost to the calling party) long distance telephone calls from anywhere in selected service areas at bulk rates." Comdata, 21 Ct. Cl. at 129.

B. COBRA Service is not a Local Telephone Service Because it did not Provide Communications with Substantially All Persons that have Telephones.

54. Section 4252(a) of the Tax Code requires the ability to communicate with substantially all persons having telephone stations in the local telephone system. This Court is required to "presume that a legislature says in a statute what it means and means in a statute what it says there. When the words of a statute are unambiguous, then, this first canon is also the last: judicial inquiry is complete." Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54 (1992).

55. The reference to communications with "substantially all persons having telephone stations" cannot be presumed by this Court to be mere surplusage, nor can the reference to a "telephone station." Indeed, the IRS has consistently interpreted the reference to "telephone stations" in section 4252(a) to mean ordinary telephone sets. See Rev. Rul. 78-437, 1978-2 C.B. 266 (equating stations with a "telephone set"); Rev. Rul. 79-245, 1979-2 C.B. 380 (stating that the tax applied where the subscriber had the right to voice quality communications with all persons having "telephones" in the local system); see also Agron v. Illinois Bell Tel. Co., 319 F. Supp. 418, 420 (D. Ill. 1970) (stating that the IRS agreed that the term "local telephone service" in section 4252(a) is to be given its "commonly accepted and understood meaning — the right to use a telephone which is part of a telephone system and to communicate thereby with other persons having telephones which are part of this system"), rev'd on other grounds, Agron v. Illinois Bell Tel. Co., 449 F.2d 906, (7th Cir. Ill. 1971).

56. While the IRS now argues that the reference to telephones is "neither relevant nor material to the excise tax analysis," and that the ability to communicate with telephones is not a necessary component of local telephone service, the Court rejects this position because the statute expressly defines local telephone service to mean a service that provides telephonic quality communications with persons having telephones.

See IRS Surreply at ¶ 4.

57. While the IRS argues that COBRA service is taxable because that service "provides access between [the ISPs'] dial-up customers' modems and the modems and/or DSPs within the COBRA system, and thus require two-way, voice capable, telephonic quality communication," this argument fails to satisfy the express requirement that the service grant the subscriber ( i.e. the Reorganized Debtors) the right to communicate with telephones. The uncontroverted and undisputed evidence before the Court demonstrates that the Reorganized Debtors did not have the capability of engaging in telephonic quality communications with persons having telephone or radio telephone stations. As defined, a local telephone service must provide the subscriber with the privilege of interconnection to actual telephones, and accordingly, the Court concludes that COBRA service is not a "local telephone service" under the 1965 Act.

Reply at ¶ 40.

C. COBRA Service is not a Local Telephone Service Because it is a Private Communication Service.

58. The 1965 Act creates an exemption from taxation for private communication services. Trans-Lux Corp., 696 F.2d at 967. Congress created this exemption by excluding private communication services from the definition of "local telephone service." See 26 U.S.C. § 4252(a) (stating that "the term `local telephone service' does not include any service which is a `toll telephone service' or a `private communication service' as defined in subsections (b) and (d)").

59. Section 4252(d) provides that:

For purposes of this subchapter, the term "private communication service" means —

(1) the communication service furnished to a subscriber which entitles the subscriber —

(A) to exclusive or priority use of any communication channel or groups of channels, or

(B) to the use of an intercommunication system for the subscriber's stations,

regardless of whether such channel, groups of channels, or intercommunication system may be connected through switching with a service described in subsection (a), (b), or (c),

. . . except that such term does not include any communication service unless a separate charge is made for such service.

Only section 4252(d)(1) is applicable here because the IRS Claim relates to amounts paid for COBRA service only. See 26 U.S.C. § 4251(a) (imposing tax only on amounts paid for subject services). In this case, no amounts have been paid for switching capacity, extension lines and stations, other associated services, or channel mileage. As a result, the provisions related to such other associated services (4252(d)(2)) and channel mileage (4252(d)(3)) have not been implicated.

60. Accordingly, if COBRA service entitles the Reorganized Debtors to "exclusive" use of any communication channel or groups of channels, and a separate charge is made for COBRA service, the service will be exempt from the telephone tax, regardless of whether the channels may be connected through switching with a local telephone service, a toll telephone service, or a teletypewriter exchange service. In everyday speech the word "exclusive" means "relating to or marked by exclusion; not shared with others." WEBSTER'S II NEW COLLEGE DICTIONARY 391 (1999).

61. The government did not controvert the evidence adduced at trial that COBRA service is a private communication service, nor did it offer any rebuttal evidence. The Court thus accepts such evidence and concludes that COBRA service is a private communication service for purposes of section 4252(d) of the Tax Code. The facts demonstrate that COBRA service entitles the Reorganized Debtors to exclusive use of any channel or groups of channels and that a separate charge is made for such service. The factors that lead to this conclusion are set forth in the Court's Findings of Fact above, but include:

a) the Reorganized Debtors do not share the COBRA platform or any service related thereto with others;

b) the Reorganized Debtors have sole and exclusive access to the data channels on the NAS;

c) no other entity has use of, or access to, the single, integrated datastream transmitted through the NAS; and

d) the Reorganized Debtors are separately charged each month for COBRA service on a per port basis.

62. Because the Court has concluded that COBRA service constitutes a private communication service under section 4252(d), that service necessarily cannot be a "local telephone service" as defined in section 4252(a).

D. COBRA Service is not a Teletypewriter Exchange Service Because it does not Provide the Reorganized Debtors with Access to or from the Teletypewriter Exchange System.

63. The Court also concludes that COBRA service is not a "teletypewriter exchange service" under section 4251 et. seq. of the Tax Code because it is uncontroverted, and in any event, the facts demonstrate that COBRA service does not provide access from a teletypewriter or other data station to the teletypewriter exchange system.

E. COBRA Service is not a Toll Telephone Service Because the Reorganized Debtors are Charged Per Port.

64. The Court also concludes that COBRA service is not a "toll telephone service" under section 4251 et. seq. of the Tax Code. The Court reaches this conclusion because it is uncontroverted, and the facts demonstrate that the Reorganized Debtors do not pay a toll charge which varies in amount with the distance and elapsed transmission time of each individual communication. See 26 U.S.C. § 4252(b)(1)(A). Moreover, Reorganized Debtors do not pay a periodic charge (determined as a flat amount or upon the basis of total elapsed transmission time) as would be required. See 26 U.S.C. § 4252(b)(2).

CONCLUSION

65. This Court does not have the power to enlarge the scope of the statutory language; "[t]o supply omissions transcends the judicial function." Iselin v. United States, 270 U.S. 245, 251 (1926). In accordance with the plain meaning of the statute, COBRA service is not a local telephone service. Moreover, COBRA service is not a toll telephone service or a teletypewriter exchange service.

66. The Reorganized Debtors have met their burden, both of production and persuasion, in challenging the validity of the federal communications excise tax as applied to COBRA service.

67. The Objection is granted.

68. The IRS Claim is disallowed and expunged.

69. The Court will enter an appropriate order. Dated: New York, New York

Dated: New York, New York _____________, 2006

______________________________ United States Bankruptcy Judge


Summaries of

In re Worldcom, Inc.

United States Bankruptcy Court, S.D. New York
Mar 27, 2006
Case No. 02-13533 (AJG) (Jointly Administered) (Bankr. S.D.N.Y. Mar. 27, 2006)
Case details for

In re Worldcom, Inc.

Case Details

Full title:In re WORLDCOM, INC., et al., Chapter 11, Reorganized Debtors

Court:United States Bankruptcy Court, S.D. New York

Date published: Mar 27, 2006

Citations

Case No. 02-13533 (AJG) (Jointly Administered) (Bankr. S.D.N.Y. Mar. 27, 2006)