In a recent decision, a federal court overturned a telephone tax that has been charged for years. Given the result, the IRS has decided to issue refunds for past collected taxes.

IRS Sets Telephone Tax Refund Amounts

In 1898, the federal government passed a law assessing taxes on long distance phone use in the United States. The tax was so relatively small, ranging from one to three percent, that it was never questioned. Last year, that changed. The tax was challenged in court and found to be invalid. After a few challenges, the IRS agreed to stop collecting the tax. It even went so far as to agree to issue refunds on some of the taxes collected.

Given the fact the 1898 law covers just a bit of time, the issue of telephone tax refunds is potentially a complicated one. Simply put, how do you figure out how much tax you have paid on phone bills for this specific assessment through the years? At one to three percent, it certain is not much. Further, how do you prove the tax payments if you are audited? Anyone have phone bills from 1898? Probably not. In truth, the refund amount only looks back 41 months, but you get the idea.

To overcome these issues, the IRS is proposing a flat rate refund for taxpayers. The refund amounts are proposed to be $30 to $60 depending on specifics. More importantly, taxpayers will not be required to dig through old phone bills to substantiate the deduction. To claim the tax refund, you will need to fill in a yet undeclared area on your 2006 tax return. Just to be clear, this is the return you should file on April 2007.

So, how do you figure out how much you can claim as a refund? The refund amounts are being tied into the number of exemptions you claim. The standard amounts are $30 for a person filing a return with one exemption, $40 for two exemptions, $50 for three exemptions and $60 for four or more exemptions. If you are single and claim one exemption, the refund amount will be $30. If you wish to go through your phone bills and claim the exact amount of tax you paid as a refund, you also have this option.

Given the fact businesses tend to use long distance telephone services more, there is no standard deduction amount. The IRS is playing around with ways to come up with a set amount, but most believe businesses will have to dig through their phone bills to calculate the correct amount. Businesses simply vary too much to come up with universal numbers.

Richard A. Chapo is with Business Tax Recovery - providing information on tax forms.

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