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Taxpayers Claiming 'Improper' Phone Tax Refunds, Says IRS

by Leroy Baker, Tax-News.com, New York

29 January 2007


The Internal Revenue Service said last week that early filings show some individual taxpayers have requested "large and apparently improper" amounts for the special telephone tax refund.

The IRS is investigating potential abuses in this area and the agency has pledged to take "prompt action" against taxpayers who claim improper refund amounts and the return preparers who help them.

“While the vast majority of taxpayers are claiming the telephone tax refund correctly, we are seeing some clear abuse involving overstated refund requests,” observed IRS Commissioner Mark W. Everson, adding that: “People requesting an inflated amount will likely see their refund frozen, may have their entire tax return audited and even face criminal prosecution where warranted.”

The government stopped collecting the long-distance excise tax last August after several federal court decisions held that the tax does not apply to long-distance service as it is billed today. Federal officials also authorized a one-time refund of tax collected on service billed during the previous 41 months, stretching from the beginning of March 2003 to the end of July 2006. The tax continues to apply to local-only phone service.

The IRS checked a sample of returns filed through mid-January and found that some individual taxpayers requested telephone tax refunds that appear to be excessive. In some cases, the IRS said that taxpayers appear to be requesting a refund of the entire amount of their phone bills, rather than just the 3% tax on long-distance and bundled service that they are entitled to.

According to the agency, some individuals are making requests for thousands of dollars, indicating that they had phone bills topping $100,000 – an amount exceeding their income. The IRS also noted that some tax preparers appear to be helping their clients file apparently improper requests.

“If we find inappropriate refund claims, we will aggressively pursue tax preparers and promoters who make the improper requests, and we will contact individual taxpayers in egregious situations,” Everson said. “Audit letters will be sent out soon and, when appropriate, our investigators will visit tax preparers who have been preparing questionable telephone tax refunds.”

Based on research and contacts with telephone service providers, the IRS believes that the standard refund amounts, ranging from $30 to $60 based on the number of exemptions claimed on a tax return, would approximate the eligible amount for most taxpayers.

The agency urged taxpayers to file their returns electronically to ensure that they do not make mistakes and inadvertently claim for false amounts. It also warned filers to steer clear of "unscrupulous" promoters and tax preparers who make false claims about the telephone tax refund and suggest that many phone customers can get hundreds of dollars or more back under the program.


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