Don't forget to file for refund on phone tax

On the Money

Your Money

March 11, 2007|By Gail Marksjarvis | Gail Marksjarvis,Chicago Tribune

Want an easy 30 to 60 bucks?

Then don't miss asking for it when you do your taxes, and don't just rely on a tax preparer to get it for you.

About 30 percent of taxpayers are missing out on the simple $30 to $60 refund, according to the Internal Revenue Service. Yet it's available to virtually every American who has paid for telephone service over a three-year period.

In response to a tax case, the IRS is returning telephone excise taxes that people should not have been charged on phone bills. But people receive the money back only when requesting it on a tax return, and even tax preparers have missed out on this no-brainer refund, according to the IRS.

The oversight underscores the fact that not all tax preparers are as equipped as individuals might think to handle taxes. And in the worst of cases, they can get individuals into trouble

Although some tax preparers are missing out on the telephone tax refund, others are being overly aggressive with it - promising clients refunds of hundreds or thousands for their telephone service, rather than the standard refund of $30 to $60.

Taxpayers can claim an automatic $30 to $60 refund, depending on the number of exemptions they are eligible to claim. They also can claim the actual amount of excise taxes paid after Feb. 28, 2003, and before Aug. 1, 2006, if they can document it with old phone bills.

The IRS has been clamping down. In a case in Baton Rouge, La., IRS agents investigated a tax preparer who was seeking refunds averaging close to $4,000 for dozens of clients.

The IRS has been penalizing the preparers, rather than the individuals, but IRS spokeswoman Sue Hales notes that the individual is ultimately responsible and can be penalized, too. So turning a blind eye on an extravagant refund could be expensive. Even without a penalty, taxpayers are charged 0.5 percent interest a month on taxes they should have paid.

People should be suspicious if a tax preparer is claiming hundreds or thousands of dollars for the telephone refund, said IRS Agent David Williams.

He arrived at the standard refund of $30 for single taxpayers and $60 for a family of four after analyzing taxpayer phone bills.

"Maybe a small business could spend thousands on telephone service, but it's highly unlikely that the refund would be that large," Williams said.

Although some tax preparers are promising large telephone refunds to attract clients, individuals have been making mistakes on their refund calculations too.

Some erroneously thought they could receive a refund for their entire telephone bill, rather than just the 3 percent federal excise tax. Others computed 3 percent of their most recent telephone bill - a process that doesn't work because telephone rates and charges have changed over the past few years, Williams said.

When using tax preparers, individuals can protect themselves by choosing those who promise in writing to absorb any costs imposed by the IRS for mistakes. They should also select preparers who are licensed, trained and are required to attend continuing education, Hales said.

Taxpayers should never sign a blank tax return. If they do, they will be responsible for whatever goes in the return, and the tax preparer will have no responsibility.

Apart from fraud, taxpayers should also be leery of preparers who offer refunds upfront. There is nothing illegal about this, but the fees are high and tax refunds generally arrive within a few weeks - making the upfront refund unnecessary.

gmarksjarvis@tribune.com

Messages can be left for Gail MarksJarvis at 312-222-4264.

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