By Paul N. Gada, Toolkit Staff Writer
The IRS recently announced that early 2006 returns contain many mistakes with respect to claiming the recently announced federal telephone excise tax refund. Taxpayers are being encouraged to take a few extra minutes and review the details of this special one-time refund.
"A little extra time will reduce the chance for a mistake, avoid a refund delay and possibly add a few dollars onto refund checks," said IRS Commissioner Mark W. Everson.
Last year, after losing numerous court cases on this issue, the IRS finally conceded that long distance telephone charges that vary only by time elapsed (not by distance) are not taxable under the tax code. During the 2007 tax filing season, the IRS will be refunding the long-distance portion of the federal telephone excise tax collected between March 2003 and August 2006.
Some of the early mistakes found on returns filed in January include:
- Failing to request the telephone-tax refund altogether (includes more than one-third of persons who filed their tax returns early)
- Filling out Form 1040EZ-T incorrectly by failing to complete Line 1a, indicating the refund amount requested. This form was designed for taxpayers, approximate 10 million low-income and elderly individuals, that are not required to file a income tax return but that are eligible to claim the telephone-tax refund
- Filing duplicate requests
- Requesting refunds based on the entire amount of the taxpayer's telephone bills rather than the three-percent tax on long-distance and bundled service
- Requesting refunds in the thousands of dollars implying that the taxpayer paid more for telephone service than their actual income (these returns are being investigated for potential abuses and the IRS will prosecute taxpayers and tax return preparers who knowingly request improper amounts)
The IRS offered the following suggestion for those taxpayers who have not yet filed their returns to ensure they request the correct refund amount and receive the refund check promptly:
- Take advantage of electronic filing, since most software will highlight overlooked tax breaks and assist in calculating amounts correctly
- Use the IRS free file site if your income is under $52,000
- Choose direct deposit, regardless of whether a return is filed electronically or on paper
- Consider using the standard-refund amount for the telephone-tax refund (ranging from $30 to $60). This safe harbor amount is optional, but is easier to use and is close to the refund amount that the majority of taxpayers are entitled to
- If calculating the actual amount from the tax shown on telephone bills, refund claims must be based on the three-percent federal excise tax paid, not the total phone bill
- Do not file duplicate requests (the telephone tax refund is claimed on the regular income tax return; only use Form 1040EZ-T if you are not required to file an income tax return, but are eligible for the refund)
- Avoid tax preparers falsely claiming that they can obtain hundreds of dollars in telephone-tax refunds
- Refer to the Telephone Excise Tax Refund section on the front page of the IRS.gov if any questions arise
Telephone Tax Refund Abuse Targeted
The IRS also announced that it is taking steps to prevent abuse of the telephone excise tax refund and to help taxpayers make more accurate requests for the refund. IRS Criminal Investigation agents and revenue agents are conducting site visits with tax preparers to prevent inflated requests-for-refund from being made.
Some tax return preparers are requesting thousands of dollars in refunds for taxpayers, where it is clear that the taxpayers are only entitled to a small fraction of that amount. Some requests appear to be for the entire amount of the taxpayer's phone bill, rather than just the three percent long-distance tax. Taxpayers who request a larger refund than they are entitled to will have their refunds held by the IRS and may be subject to audit.
"We are taking this unusual step to confront blatant abuse of this important refund program," said IRS Commissioner Mark W. Everson. "We want tax preparers to prepare accurate tax returns. If they don't, we will move swiftly to impose civil penalties and, where warranted, seek criminal sanctions."
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- Congressional Panel Examines Business Tax Reform
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- IRS Outlines Taxpayer Protections in Private Debt Collection Program
- IRS Outsources Some Debt Collection Activity
Added to the news on February 28, 2007.
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