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# Fifth Circuit Rules USF Contributions Income
- URL: https://broadbandbreakfast.com/fifth-circuit-rules-usf-contributions-income/
- Published: 2011-01-19T21:17:31.000Z
- Updated: 2026-03-11T06:34:26.000Z
- Description: TEXAS – Companies receiving state and federal Universal Service Funds (USF) must pay federal income tax on those funds, according to a judgment from the Fifth Circuit earlier this month. The appellate court upheld a summary dismissal from the U.S. District Court for the Western District of Texas aga
- Author: Jonathan Charnitski
- Tags: USF, AT&T, Fifth Circuit, IRS, Western District of Texas, #wp, #wp-post, #Import 2024-02-01 10:23, #added-preview-divider

TEXAS – Companies receiving state and federal Universal Service Funds (USF) must pay federal income tax on those funds, according to a judgment from the Fifth Circuit earlier this month.

The appellate court upheld a summary dismissal from the U.S. District Court for the Western District of Texas against AT&T on a claim for the refund of more than $500M in income taxes paid to the Internal Revenue Service. The carrier maintained that more than $1.5B in state and federal USF contributions received between 1998 and 1999 should not be subject to federal income tax.

AT&T argued that contributions from the USF, which subsidizes affordable telephone service, should be considered non-shareholder contributions to capital rather than gross income. Gross income is subject to regular income tax rates while non-shareholder contributions are not. In rejecting AT&T’s claim, the court looked to the Government’s intent to supplement “lost revenues” the carrier incurred by providing service to high-cost and low-income subscribers.