No good tax break goes unpunished

New this filing season, and for 2006 returns only, is the credit for previously-paid federal excise taxes on long-distance telephone service. Several readers have dropped me notes about how the claim process is going for them.

Apparently, not too well.

As noted in this story, you get the choice of claiming a standard amount ranging from $30 to $60 depending on your number of exemptions. Or you can submit Form 8913 with the details of your federal phone taxes from March 1, 2003, through July, 31, 2006.

The experiences of Brian in Maryland are pretty typical. He reports that he first contemplated filing for the precise amount. "I kept a lot of my bills and our family uses cell phones and we’ll be able to get credit for those as well."

Then he actually looked at Form 8913. "They aren’t gonna make it easy on us, and you should see the form and instructions for doing it the long way. And to make it even more difficult, the phone companies don’t always call it the excise tax."

Yep, it seems that 8913 could well represent the number of form entries and subsequent calculations you have to make to compute your precise phone credit amount.

You list your total actual phone charges (divided into 13 quarter segments plus a two-month period). Then you fill out a 10 line worksheet to get your rate. Then multiply those two amounts for each of the 14 entries to get the credit due for each.

Oh yeah, there’s also the interest that accrued on the credit you haven’t yet received for the amounts you entered in each of the 14 time periods. That’s done by multiplying each separate credit amount you just calculated by a special interest factors, a separate zero-point-nine-numbers figure for each of the 14 time frames.

Time to take a breath.

I think Brian says it best: "I came to the conclusion that it was very difficult to figure out and that I’m probably gonna take the standard amount."

Do you get the impression that the IRS, irritated about all those court cases it lost in connection with this tax, designed the credit form to get back at us for claiming it?  No wonder the agency expects most people to take the standard credit amount; the form-completion process is practically forcing us to do just that.

I hate to surrender so easily, so I checked a couple of popular tax guides, Taxes for Dummies and the Ernst & Young Tax Guide, for assistance. Neither offered any details on how to cope with Form 8913.

My advice if you’re insistent on claiming an exact phone tax amount: Use tax software. That way at least all the computations will be done and transferred to the correct places on the 8913 and 1040 forms.

IRS finding problems with early credit claims: That’s what the IRS is suggesting, too, along with the agency’s annual call for us e-file and have any refunds directly deposited. But this year, federal tax officials are especially noting that the software can help us avoid mistakes in claiming the long-distance credit.

And, as Brian and others have pointed out, mistakes are easy to make here.

Early returns confirm that. The IRS says it checked a sampling of returns filed through mid-January and found that some taxpayers appear to be seeking an excessive credit.

Apparently, some filers are requesting a refund of the entire amount of their phone bills, rather than just the 3-percent tax assessed on long-distance and bundled services.

Others are submitting dollar amounts that could have only been charged on phone bills larger than $100,000. In some of these instances, says the IRS, that’s more income that the taxpayer is reporting.

And, as is sadly common in tax season, some of the claims appear to be out-and-out fraud attempts.

"If we find inappropriate refund claims, we will aggressively pursue tax preparers and promoters who make the improper requests, and we will contact individual taxpayers in egregious situations," said IRS Commissioner Mark Everson. "Audit letters will be sent out soon and, when appropriate, our investigators will visit tax preparers who have been preparing questionable telephone tax refunds."

By all means, claim the phone credit you’re due, but make sure it is indeed the correct amount. You definitely do not want to answer a follow-up call from the IRS.