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IRS Says Some Taxpayers Seek Inflated Telephone Tax Refunds January 25, 2007

Posted by notapundit in US News.
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WASHINGTON (Dow Jones)–Early U.S. tax returns show some individuals improperly requested large amounts for a special refund of long-distance telephone taxes, the Internal Revenue Service said Thursday.

“While the vast majority of taxpayers are claiming the telephone tax refund correctly, we are seeing some clear abuse involving overstated refund requests,” IRS Commissioner Mark Everson said in a statement.

“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,” Everson said.

Individual and corporate taxpayers are eligible for an estimated $13 billion in refunds on telephone taxes. The payouts followed the Bush administration’s decision in May 2006 to quit a lengthy court fight challenging the long-distance telephone tax. This tax dates back to 1898, first imposed to fund the Spanish-American War.

The telephone tax is a 3% rate on the value of local, long-distance and wireless phone services; refunds are available for tax paid for the 41 months from March 2003 through July 2006. A 3% federal excise tax on local service still remains in effect, however.

In August, the IRS announced a standard refund amount for individuals based on the total number of exemptions claimed on the 2006 federal income tax return. For a person claiming one exemption, the standard amount is $30; for two exemptions, $40; for three exemptions, $50; and for four or more exemptions, $60.

IRS said that in some cases, taxpayers appear to be requesting a refund of the entire amount of their phone bills, rather than just the 3% long distance tax.

Others are “making requests for thousands of dollars, indicating that they had phone bills topping $100,000 – an amount exceeding their income,” IRS said. And it said some tax preparers are 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’s statement said.

The IRS plans to send out audit letters soon and may send IRS agents to visit tax preparers who have been preparing questionable telephone tax refunds, he said.

The IRS said taxpayers don’t need proof for claiming the standard amount for a phone tax refund. As an alternative, taxpayers can calculate the refund using the actual amount of tax paid, based on their phone bills and other records. IRS said taxpayers shouldn’t send these records with the tax return but keep them in the event of IRS questions.

By Rob Wells, Dow Jones Newswires

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