It's perhaps the easiest $30 to $60 you'll ever collect from the Internal Revenue Service, but more than one-third of early-bird tax filers have failed to claim the telephone excise tax refund, available this year to just about any taxpayer who paid for long-distance telephone service in recent years, the IRS says.
"A little more than one in three returns are omitting the telephone-tax refund," says Eric Smith, an IRS spokesman.
Some of those taxpayers are correct in not claiming the refund because they didn't pay for long-distance service, but plenty of taxpayers who aren't claiming the refund are "omitting it in error," Smith says.
The refund, available this year only, came about after court decisions found the excise tax, first levied in 1898 to fund the Spanish-American War, should no longer apply to telephone service as it's billed today. Taxpayers can claim a refund based on the 3% excise tax they paid on long-distance calls from March 2003 through July 2006.
You can add up all that federal excise tax you paid based on your old phone records, or you can take the easy route by taking a standard refund amount, based on the number of personal exemptions you claim. If you claim one exemption, you can claim a $30 refund; two exemptions, $40; three exemptions, $50; and four exemptions, $60. On Form 1040, you claim the refund on Line 71.
Mistakes could delay refundOther returns show that taxpayers have tried to claim the refund but made mistakes that may delay their refund, while other filers appear to be claiming excessively large amounts, the IRS says.
The problems are showing up on returns taxpayers prepared with pen and paper, as well as those electronically filed, although the IRS could not say which mistakes tended to occur online and which occurred on paper returns.
In some cases, "people are requesting way too much, either knowingly or unknowingly," Smith says. "It appears that some people are making a refund request based on their entire telephone bill. People are looking at their bills and putting down the amount of the bill rather than the amount of the tax."
The refund is only allowed on the amount of federal excise tax paid on long-distance calls, Smith says.
Though some taxpayers are making mistakes, others may be trying to scam the IRS. "There are people that appear to be gaming the system," Smith says, noting that some refund claims imply that the taxpayer paid more in telephone service than earned in income.
"There's a reasonable chance that somebody who is saying that is trying to request something that they don't deserve," Smith says. "We're going to be really hard on people who do that sort of thing."
Other common mistakes include filing both a regular return and a Form 1040-EZT, a form designed specifically to provide the telephone refund to people who aren't required to file a tax return, such as those with very low income.
Form 1040-EZT is a tax return. Filing it plus another tax return is the same as filing two returns. "That's going to cause a problem," Smith says. Filing two returns is likely to "freeze the account, probably for months. You don't want to have to wait if you're waiting for a big refund."
Another mistake: Form 1040-EZT filers are failing to note the amount of refund they are claiming. That amount needs to be entered on Line 1a of that form.
This article was reported and written by Andrea Coombes for MarketWatch.