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Saturday, January 27, 2007

EXCESS TELEPHONE TAX REFUNDS BEING FILED

As we previously wrote about, in 2006 the IRS acknowledged that telephone communications for a which a toll charge varied with elapsed time and not distance were not taxable. Taxpayers are allowed to file for a refund on their 2006 returns for such telephone taxes that were previously paid. A credit for the paid taxes can be obtained either by using certain safe harbor dollar amounts, or by calculating and requesting a credit for the actual amount of taxes paid.

The IRS has indicating that in reviewing 2006 tax returns that have already been filed, some taxpayers are (intentionally or unintentionally) abusing the system by seeking refunds for more than they are entitled. For example, some taxpayers are requesting refunds for the entire amount of their phone bills, not the just 3% tax on long-distance and bundled services. Others are making requests for thousands of dollars, indicating phone bills in excess of $100,000, which amounts exceed their entire income!

The IRS is now warning taxpayers that indiviuals requesting an inflated amount may see their entire refund frozen, may have their tax returns audited, and could even face criminal prosecution.

IR News Release 2007-16 (January 25, 2007)
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