Early returns received by the IRS indicate many taxpayers are making mistakes when requesting the telephone tax refund. The telephone tax was institued in 1898 as a “luxury tax” but was recently ruled to be unconstitutional. Taxpayers are entitled to a refund equalling three years of actual Telephone Excise Tax paid or may claim the standard amount on the IRS forms.

Early mistakes found on a sample of 2006 returns filed during January include:

* Filling out the Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, incorrectly by failing to show a refund amount on Line 1a. Designed exclusively for requesting the telephone-tax refund, this simple form is for people who don’t need to file a regular income-tax return. Filing an incomplete form typically delays a refund and often leads to follow-up correspondence with the IRS. More than 10 million low-income people, many of them senior citizens, are expected to file this form.

* Failing to request the telephone tax refund on a regular federal income-tax return in situations where the taxpayer appears to qualify. More than one-third of early filers did not request the telephone tax refund. This includes filers on Forms 1040, 1040A, 1040EZ, 1040NR and 1040NR-EZ. About 136 million individuals and couples are expected to file one of these forms, and most will, likely, qualify for the telephone-tax refund. Anyone who files one of these forms cannot file Form 1040EZ-T.

* Filing duplicate requests. Usually, this involves filing both Form 1040EZ-T and a regular income-tax return. Anyone who files a regular return cannot file Form 1040EZ-T. Doing so will delay any refund for months and result in a phone call or letter from the IRS.

* Requesting a refund that appears to be based on the entire amount of the taxpayer’s phone bills, rather than just the three-percent tax on long-distance and bundled service.

* Requesting a refund in the thousands of dollars, suggesting that the taxpayer paid more for telephone service than they received in income.

The IRS is investigating potential abuses among early filers who requested large and apparently improper amounts for the telephone tax refund. They will take prompt action against taxpayers who request improper refund amounts and the return preparers who help them.

For help in filing for the telephone tax refund, see the IRS website.

I hope you liked all your Christmas gifts this year, because retailers are determined to keep you from returning them.

You can’t blame them. Every year retailers lose part of their holiday profit on returned items. Electronics that are returned in opened boxes often cost them most, as they may have to discount the items for resale. To combat this, many retailers are imposing a “restocking fee” on certain returned items, to cover the cost of repackaging and any loss they may suffer on the resale of the item.

Other retailers are keeping track of just who returns what and how often. Wal-Mart, for instance keeps track of the number of returns for any one person and if a shopper exceeds the limit they are disqualified from any further returns.

Receipts will definitely be required. Easy refunds and store credits are a thing of the past. Retailers have been burned once too often. If you have your receipt you shouldn’t encounter any difficulty, but be prepared for long lines.

Hope you had a Merry Christmas.

As I have mentioned before, the IRS offers taxpayers with an income of less than $50,000 (increasing to $52,000 for 2007) the option to file their taxes online for free.

The tax services offered through Free File are provided by third party tax preparers such as H&R Block. These tax preparers have offered refund anticipation loans along with the tax filing but the IRS says it will prohibit those loans in the future.

Refund Anticipation Loans, or RALs, offer taxpayers a way to get their refund money faster but there are high interest charges and fees that are deducted from the refund, thus lowering the final refund the taxpayer receives. The attraction of getting that refund in a few days has cost low-income taxpayers millions of dollars in fees and the IRS wants to put an end to it.

The IRS says it is going to ban the marketing of refund anticipation loans to taxpayers who use the “Free File” online filing system.

The IRS has announced the standard amounts that most long-distance customers can use to figure their telephone tax refund. The standard amounts are based on the total number of exemptions claimed and range from $30 to $60.

The amounts per number of exemptions are:

1 exemption = $30
2 exemptions = $40
3 exemptions = $50
4 exemptions = $60

The refunds are for tax paid on long-distance telephone service between February 28, 2003 and August 1, 2006. To get the standard amount taxpayers need only fill out one extra line on their 2006 returns.

You can file actual taxes paid and receive a refund if you gather the 41 months’ worth of documentation. Those who would benefit from filing based on actual tax paid might find it worth analyzing their telephone bills for that period.

“The easiest way for eligible taxpayers to get their money back is to use the standard amounts,” said IRS Commissioner Mark W. Everson. “These amounts save taxpayers from locating 41 months of old phone bills and analyzing these bills to determine the taxes paid. We believe the standard amounts are both reasonable and fair.”

The IRS made a decision to stop collecting the long-distance telephone tax, first imposed in 1898, after five federal appeals courts decided that it did not apply to long-distance service as it is billed today.

IRS Announces Standard Amounts for Telephone Tax Refunds