A Tax Refund E.T. Would've Loved

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This week, Gail tells you about a tax refund that might make you go digging up old phone bills to find out what you are owed.

Dear Friends-

The IRS has $13 billion dollars to give away and virtually every one of us is owed a piece of it!

It all stems from an annoying tax that you may not have even noticed: the 3 percent levy that’s tacked on every long-distance phone bill. By law, telephone companies have been collecting this money and passing it on to the federal government since — are you ready? — 1898!

However, in five separate cases, federal courts of appeals have ruled that the excise tax should not apply to charges that are based on the distance you’re calling. Seeing the writing on the wall, the Treasury Department announced that it is eliminating the federal tax on all long-distance calls starting August 1st.

This decision is retroactive: individuals and businesses that have paid the tax since March 1, 2003 are entitled to a full refund. It includes the tax paid on “land-line” as well as cellular long-distance service.

I know what you’re thinking: “Great. Now I have to dig up all my phone bills and fill out a lot of extra paperwork just to get my money back. What a pain in the neck.”


The IRS is actually bending over backward to make it simple to claim your refund.

Spokesperson Eric Smith says the IRS recognizes that ”virtually every taxpayer” is going to be entitled to a refund, adding that the agency’s goal is to come up with a process that makes it “as easy as possible for everyone who is eligible.”

But don’t start spending the money yet. You’ll apply for a refund as part of filing your 2006 income tax return next year. According to Smith, the IRS is adding a new line to Forms 1040, 1040A and 1040 E-Z specifically for this purpose.

“In addition,” says Smith, “We recognize that there are millions who don’t file a return because their income is very low and they’re not required to file. We’re going to create a simplified form they can use to claim the telephone tax refund.”

Attention Packrats: you’ll be happy to know you will have the option of going through your phone bills and adding up the amount of federal long-distance tax you paid each month. The rest of us will use a formula—yet to be determined—to come up with an estimate.

Businesses – including corporations and partnerships — will also claim a refund on their 2006 returns, but they will have to go back through their records and calculate the actual tax paid; they won’t be eligible to estimate the amount. Non-profit organizations will file Form 990-T.

Keep in mind that only the tax on long-distance phone service is being canceled. The federal tax on local calls will still apply. However, there appears to be support in Congress to repeal this, as well.

I’ll let you know when details on exactly how to claim a refund are announced.

In the meantime, calling grandma — or your old college roommate — gets a little cheaper starting August 1.

Hope this helps,

If you have a question for Gail Buckner and the Your $ Matters column, send them to: yourmoneymatters@gmail.com, along with your name and phone number.