Your computations regarding the telephone excise tax refund are a much-discussed but likely overlooked issue regarding your 2006 tax return. As many of you know, the federal government was slapped on the wrist by the courts regarding these excise taxes, and in May 2006, it finally decided to concede the issue and refund the taxes (or at least a portion of them) to the general public. Remember that the refunds deal only with excise taxes on long-distance phone service. The excise tax on local service is still being charged, and will likely continue to be charged long after we find out who fathered Anna Nicole's baby.
Nevertheless, the Treasury Department reported that the IRS would be in charge of issuing these refunds. It's not as if the folks at the IRS didn't already have enough to do, what with Congress passing tax law changes at the end of the year -- long after the 2006 IRS forms went to print. Regardless, the IRS created Form 8913 in order to track and reconcile the excise taxes and compute the amount of the refund.
The one-page form seems simple enough. It breaks down the potential excise tax by three-month periods from March 2003 through July 2006. The challenge is trying to fill it in. Assuming you retained your personal home telephone bills for the period in question (and why would you?), you'll still have to dig through them in order to determine the amount of the tax for the periods in question. Heck, even the Office of Management and Budget (OMB) estimates that it'll take you almost 14 hours to gather the records and complete the form. Nice way to spend a weekend, I guess. But don't even think about trying to complete the form without reading the instructions -- all four pages of them.
Even after all that time, it's likely that unless you spend a considerable amount of money on long-distance telephone service, the actual amount of the refund will be negligible. Most folks don't have the records (in fact, the instructions inform you that the telephone service providers are not required to provide you with duplicate records) and have no way to reconstruct them. Many businesses may have the records (in order to support their telephone expenses under audit), but will be prohibited from claiming the refund if they previously deducted the excise taxes as business deductions. You see, such excise taxes are not business deductions, and should never have been claimed as such. But this is one of the many, many tax laws overlooked by both taxpayers and tax preparers alike.
Do you see Form 8913 in your future? I certainly don't. That was obviously the same conclusion our friends at the Treasury Department reached. They decided to allow taxpayers to bypass all this record-keeping and reporting hassle and simply take the "standard excise tax" deduction on their 2006 tax return. The amounts of the refunds are based on the total number of exemptions claimed on the 2006 federal income tax return: $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 take a look at the 2006 Form 1040, line 71, you'll see where you want to claim your refund, regardless of whether you use the Form 8913 actual method or the standard refund method. And you'll find a similar line reference to claim your refund if you file Forms 1040A and 1040EZ. There are some twists and turns, especially if a taxpayer passed away during the year, but those issues will be covered in the Form 1040 instructions. If you're claiming this deduction, make sure to read them.
For most taxpayers using a computer program (such as TurboTax) to prepare their returns, this will not be a big issue, since the computer will take care of claiming the standard refund amount (if not the full-blown Form 8913, should you so desire). The only folks who will likely overlook this refund (along with many other deductions and credits that don't even show up on the forms and aren't referenced in the instructions) are those who attempt to prepare their tax returns the old-fashioned way, using pencil and paper.
One last issue worth mentioning has to do with claiming the refund when a tax return is not required to be filed. There are literally millions of taxpayers (generally senior citizens) who would qualify for the excise tax refund but, because of their limited income, are not required to file an income tax return. They haven't been overlooked. If you fall into this category, then you'll want to file IRS Form 1040 EZ-T. It's nothing more than a simple form that requests the payment of the standard refund amount. This form can be e-filed, and it also allows for a direct deposit of the excise tax refund into a checking or savings account. So if you have friends or family members who aren't required to file an actual tax return, but otherwise qualify for the telephone excise tax refund, don't overlook this form.
Finally, for all of you business owners out there who followed the law and didn't deduct your telephone excise taxes on your business tax return (all two of you), your reward is that you are not allowed to used any "standard" refund amount. Instead, you must gather your records and complete Form 8913 in order to claim your refund. But don't be alarmed; you can use an IRS-allowed formula in order to ease some of the pain of these computations.
The IRS has done an excellent job of providing a "question and answer" forum for both businesses and individuals. If you have questions that remain unanswered, I suggest that you review what the IRS has to say.
Fool contributor Roy Lewis has been a tax professional long enough to indulge his skepticism and cynical nature regarding those who draft the tax laws. Still, he understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns, as long as you promise not to ask him which stock to buy.