Windfall retirement profits. Wrong!
Home improvements and your taxes

New iPhone, old telephone taxes:
both have issues

Did you get your new iPhone today? Are you already irritated by the accompanying hassles?

You're not alone. News outlets and blogs are full of complaints about everything from the purchasing process to activation issues. Details at Associated Press, and, in my neck of the woods, the Austin American-Statesman.

I slept in. I'm not much of a gadget gal. And I'm even less of a phone person.

I didn't get a cell phone until 2000. I'm now on just my second phone. And I've had the same service provider for eight years.

Mainly, I just want to be able to call the hubby when I have car trouble or need him to pick up something that I forgot to add to his errand list. All the bells and whistles too often tend to be more pain than pleasure in trying to figure them out.

But to all you cutting edge, early small appliance adopters out there, go for it.

Telephone excise tax overlooked: All the attention on the iPhone got me thinking some tax-related telephone thoughts.

About this time two years ago, the IRS was making a concerted effort to get the word out that it had decided (after losing in court) to stop collecting the federal excise tax on long-distance phone calls. I blogged about the decision back in May 2006 and August 2006.

In conjunction with that decision, folks with phones learned they could collect a nominal credit ($30 or $60 depending on filing status; more if they had all their old phone records) as payment for past phone taxes they had paid. To get the money, most folks simply had to fill out one new line on their 2006 tax returns, filed in 2007. A few individuals had to submit a separate, but very simple, Form 1040EZ-T.

In addition to the ease of filing for the phone tax refund, the availability also was far-reaching. It could be claimed by anyone who had phone service between Feb. 28, 2003, and Aug. 1, 2006, regardless of the type of service: land line, cell or Voice over Internet Protocol, or VoIP. Even some prepaid telephone cards counted toward claiming the phone tax cash.

But, as if often the case with tax situations, there was  much confusion over calculating and claiming the tax break. Subsequently, a lot of individual taxpayers -- around 30 percent, including a lot of cell phone owners -- simply ignored the chance to get some free, easy cash via their 2006 returns.

Business phone tax issues, too: And then this year, we learn that businesses also were having issues claiming the tax break. A report from the Treasury General Inspector for Tax Administration revealed that only 5.6 percent of the 12.8 million eligible businesses claimed the refund.

The inspector general's report surmised that business owners may have believed that the work associated with claiming the refund would outweigh the benefits, that they were worried about being able to provide the needed records, or that they were simply unaware of it. The report recommended that the IRS survey tax preparers and business taxpayers to find out the reasons. The IRS agreed with the recommendation, but said it did not have the resources to conduct the survey.

The failure by businesses to claim the phone tax break was especially ironic since it was businesses that were instrumental in eradicating the levy, which originated in 1898 as temporary luxury tax to help pay for the Spanish-American War.

And it was the clunky precursors of today's iPhones that played a major role, thanks to the decision by service providers to bundle mobile services. That move rendered the distance of calls immaterial.

Businesses, always looking for ways to cut costs, saw the opening and headed to court to fight the tax. And their persistent arguments that the U.S. government was incorrectly applying the excise tax to phone charges that were not based on distance paid off for us all.

Still time to get phone money: If you or your business didn't claim your refund and are eligible, you can still get it by filing an amended 2006 income tax return.

Corporations have until March 15, 2010; individuals until April 15, 2010, to send in a 1040X.

"There’s always some poor soul who doesn't get the message," notes John W. Roth, CCH senior federal tax analyst. "And when you’re talking about millions of taxpayers, the numbers of poor souls adds up. If you’re one of those who failed to claim the refund, you have to file an amended return for 2006. You can’t claim it on this year’s return."

You can get more details on the phone tax credit in this story, and the IRS has tips for requesting your phone cash, even at this late date, here.


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