Less than 6 percent of business taxpayers claimed the one-time-only telephone excise tax refund when they filed their 2006 tax returns.
That's according to a report released Thursday by the Treasury Inspector General for Tax Administration, which was requested by the IRS to conduct an audit of the program. Even though between 13.9 million and 15.9 million business taxpayers were eligible to claim the refund, only 5.6 percent made the claims as of November 2007. The refunds totaled $876 million, or just 17.5 percent of the $5 billion collected, the report said.
The IRS tried to make it easy on businesses by allowing them to claim an estimated amount without having to gather 41 months of telephone bills. "Despite these efforts," the report said, "much of the overcollected tax might go unclaimed and unrefunded." Most individual taxpayers took the simplified route, taking the standard refund of $30 to $60 rather than finding the paperwork. By contrast, more than 71 percent of eligible individual taxpayers claimed the refund.
The Telephone Excise Tax was created in 1898 to fund the Spanish-American War. Changes to the tax over the years no longer met the requirements of the tax code. In 2006, the IRS announced it would stop collecting the tax, and put a program in place to refund the portion of their telephone excise taxes paid over long-distance or bundled telephone services between February 2003 and August 2006.
The refund is capped at 2 percent of telephone expenses for businesses with 250 or fewer employees and 1 percent for large businesses with more than 250 employees, the report said. Some businesses may still be eligible to file claims.
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. Although the IRS agreed with the recommendation, officials said they did not have the resources to conduct the survey.