Much of the excess tax collected by the Internal Revenue Service from businesses for telephone excise taxes is not being claimed or refunded, according to a new report.

The Internal Revenue Service announced its decision to stop collecting the tax in 2006 after a series of lawsuits and then implemented a program for taxpayers to receive refunds for the portion of their telephone excise taxes paid on long-distance or bundled telephone service billed after Feb. 28, 2003, and before Aug. 1, 2006, that did not meet the statutory taxability requirements.

The Treasury Inspector General for Tax Administration credited the IRS with successfully planning and implementing a refund program for businesses, but said that only 5.6 percent, or approximately 721,410, of the 12.8 million business taxpayers who had filed their returns made refund claims as of last November. Refunds associated with the claims totaled only $876.6 million, or 17.5 percent of the $5 billion collected.

The picture was different for individual taxpayers. In a September 2007 review of claims made by individuals, TIGTA found that many potentially erroneous claims went unchallenged by the IRS and resulted in excessive refunds.

TIGTA recommended that the IRS survey tax preparers and business taxpayers who did not claim the refunds to determine why; change the screening criteria for claims on amended returns and analyze screening criteria before implementing the criteria for future programs to ensure that they provide reasonable and consistent coverage; and give consideration to shifting resources from one operating division to another for future IRS projects or programs. The IRS agreed with TIGTA's recommendations.

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