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Federal refund of long-distance telephone excise tax

On your 2006 Form 1040, 1040A, 1120S, or 1065 there will be a new section to claim a refund of long-distance telephone excise taxes paid from March through July 2006. Federal tax law abolished this tax effective retroactively back to February 28, 2006.

It is not that big of a deal. Look at the average household or business telephone bill and find that the monthly tax is typically less than one dollar. Only on huge phone bills in the thousands of dollars will this tax be a few dollars. Multiplied by five month, we are talking about a typical refund of $5.00.

The IRS will provide a chart for 1040 and 1040-A filers to look up an allowable credit instead of having to get out actual telephone bills. Businesses will have to get out the actual telephone bills. Phone companies will probably print a statement of federal excise taxes paid during this period on their December 2006 and again on their January 2007 phone bills.

Taxpayers do not have to take any action now.

Conspiracy theories

There are two interesting theories about how the IRS is using the tax returns for this credit; however, that is all these two theories are: interesting.

The first one is that the IRS is trying to expand the use of the federal income tax return to include things other than income tax. By stacking credits that are not income tax related onto the tax form the IRS hopes to block a growing movement to get rid of the income tax system and replace it with a national sales tax.

The second is that this refund of excise tax could be a precursor to an abolishment or reduction of the almost 20 cent-per-gallon federal excise tax on gasoline. There actually is some merit to this theory because there have been recent proposals for the federal government to just give all tax payers $100 “gas money.” A hundred dollars is a hundred dollars, but the idea that the federal government will buy us all $100 worth of gasoline is more of an insult than a remedy. If the federal and state governments agreed to eliminate their excise taxes, then a 40 cent per gallon drop in consumer cost of gasoline would be something worth while.

Katrina extensions

The following facts should clear up a number of questions we have received concerning the Katrina extensions:
  1. The area includes the row of parishes and counties of Louisiana and Mississippi that touch the Gulf of Mexico and the row behind that row. It includes Pearl River County in Mississippi. It includes Picayune, MS. It includes Baldwin County in Alabama. It includes all of the Florida Parishes (parishes in Louisiana north of Lake Pontchartrain and east of the Mississippi River are called “Florida Parishes” because they were once part of the Republic of Florida).
  2. The filing deadline for both federal and state income tax returns in the disaster area is August 28, 2006.
  3. A taxpayer was not required to file an extension by April 15. August 28 is the new filing date, making an “extension” unnecessary.
  4. If one needs more time, he files the regular automatic extension that is usually due on April 15 on or before August 28, not the more difficult one where he needs to get IRS approval. NOTE: Although in most years we stop preparing tax returns on April 1, we will prepare returns of clients who have not yet given us their tax information. I do want to get all the returns finished by July 15. Next year I plan to go back to a strict April 1 deadline.

Recipe for disaster

Taxpayers who wait until August to file will probably experience much discomfort for one or both of two reasons:
  1. If a taxpayer files on August 28, the next income tax return is due seven instead of twelve months later. That is going to be a psychological burden. Once the April 15 “barrier” is broken, it is very difficult for a taxpayer to ever file on time again. This is why I refuse to file extensions in all but the direst circumstance.
  2. Self-employed persons who had a boost of income during in the post-Katrina aftermath will find that they owe amounts of tax that are not easily managed. The tendency is to get behind in paying the next several years’ tax bills.

Mid-year tax check-up

Especially if you are one of our tax clients whom we see only once a year, be sure to let us know if your tax situation has significantly changed. Becoming self-employed, large increase or decrease in income, change in marital status, and retirement are all things that could have either a good or a bad surprise at the end of the year when you file your tax return. Where necessary, we can prepare an end-of-the-year projected tax return. From that we can advise you whether you have to change your tax payments or tax withholdings. With five months remaining, we can spread the change out over five months to make it more manageable.

From time to time check our website at https://brrinc.org/mainmenu.html if there is any significant or startling tax news in the media. You can also email me questions from the website. Add our web site to your web browser’s favorites.

Copyright © - 2006 Dutch Hawkins Mandeville, LA USA - All Rights Reserved

May 27, 2006