Tuesday, September 12, 2006

IRS Owes You Money on Your 2006 Federal Tax Refund

I'm not sure if all of us are aware that on 2006 Tax Return we will be eligible for the refund of federal excise tax paid on long distance telephone bills.

The excise tax on telephone services was first imposed in 1898 to fund the Spanish American war. Back then only the wealthy had telephones, the U.S. had no income tax and we relied on excise taxes to fund the war. You see this tax on every local, long distance and cell phone bill you paid or are paying and it is clearly marked EXCISE TAX. The current rate is 3% of the charges billed for these services.

Taxpayers will be eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb. 28, 2003 and before August 01, 2006.

You can claim the refund of actual amount of the excise tax you paid, or standard amount. The standard amount (safe harbour amount) includes interest. In order to qualify for the standard amount refund you aren't required to submit or keep any documentation to support your refund request. To use the safe harbor amount, you must (1) have paid all taxes billed by your long distance telephone service provider after Feb. 28, 2003, and before Aug. 1, 2006; (2) have not received a credit or refund of these taxes from this service provider, and (3) either have not requested a credit or refund from the service provider or have withdrawn any such request but you have to make sure that you paid Federal Excise Tax after February 28, 2003 and before August 01,2006. IRS announces that the standard amounts for telephone excise tax refunds will range from $30 to $60 and will include interest rate. The standard amounts, which are based on the total number of exemptions claimed on the taxpayer's 2006 federal income tax return, are:

* $30 for a person filing a return with one exemption
* $40 for a person filing a return with two exemptions
* $50 for a person filing a return with three exemptions
* $60 for a person filing a return with four or more exemptions

It is up to you whether to use the standard amount or the amount of tax you actually paid. To take the standard amount, you don’t need to do anything now, but you have to make sure that you did pay excise tax. You can figure it when you fill out your 2006 return. If you decide to claim the actual amount of the excise tax you paid, you need to have copies of your phone bills showing this tax charged for each month and receipts, canceled checks, or other evidence that the tax was actually paid. The refund will be treated as a one-time payment on a taxpayer's 2006 return. It will reduce the amount that a taxpayer otherwise owes on his return or increase the amount of his refund. As explained in "Telephone Tax Refund Questions and Answers" on IRS's web page "taxes paid on local-only service are not eligible for the refund. In general, federal excise taxes paid on other types of service qualify". "It is available to anyone who paid long-distance taxes on landline, cell phone or Voice over Internet Protocol (VoIP) service".
The Government estimates the amount refunded to individuals will be about $10 billion.

Businesses and nonprofits must fill out the new Form 8913 and base their refund requests on the actual amount of tax they paid. The IRS is considering an estimation method that businesses and nonprofits could use for figuring the tax paid and is asking for public suggestions on potential methodologies that are both accurate and relatively easy for taxpayers to use. Comments should be e-mailed to Telephone.Tax@irs.gov and must be received by Sept. 15, 2006.

As always, consultation with a tax advisor is recommended.

You can click on the links below to get more information regarding the above matter:

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