Then don't miss asking for it when you do your taxes, and don't just rely on a tax preparer to get it for you.
Jan. 13: IRAs can help reduce tax bite
Jan. 6: Avoid tapping 401(k) to pay mortgage
Dec. 9: In a volatile market, examine college savings optionsue
Dec. 2: Buy and hold isn't necessarily tried and true
IN THIS PACKAGE
- The pressure on junk bonds
- Be careful, but don't miss phone-tax refund
- Amid volatility, conservative investors run risks
- Workers should watch their retirement plans
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Can they do that?
- Taking stock
- Investors seeing value in mature technology stocks
- The week ahead
- State Budgets
- Internal Revenue Service
See more topics »
In response to a tax case, the IRS is returning telephone excise taxes people should not have been charged on phone bills. But people receive the money back only when requesting it on a tax return, and even tax preparers have missed out on this no-brainer refund, according to the IRS.
The oversight underscores the fact that not all tax preparers are as equipped as individuals might think to handle taxes.
And in the worst of cases, they can get individuals into trouble.
Although some tax preparers are missing out on the telephone tax refund, others are being overly aggressive with it--promising clients refunds of hundreds or thousands for their telephone service, rather than the standard refund of $30 to $60.
Taxpayers can claim an automatic $30 to $60 refund, depending on the number of exemptions they are eligible to claim.
They also can claim the actual amount of excise taxes paid after Feb. 28, 2003 and before Aug. 1, 2006, if they can document it with old phone bills.
The IRS has been clamping down. In a Baton Rouge case, IRS agents investigated a tax preparer who was seeking refunds averaging close to $4,000 for dozens of clients.
The IRS has been penalizing the preparers, rather than the individuals, but IRS spokeswoman Sue Hales notes that the individual is ultimately responsible and can be penalized too. So turning a blind eye on an extravagant refund could be expensive. Even without a penalty, taxpayers are charged 0.5 percent interest a month on taxes they should have paid.
People should be suspicious if a tax preparer is claiming hundreds or thousands of dollars for the telephone refund, said IRS agent David Williams.
He arrived at the standard refund of $30 for single taxpayers and $60 for a family of four after analyzing taxpayer phone bills.
"Maybe a small business could spend thousands on telephone service, but its highly unlikely that the refund would be that large," Williams said.
Although some tax preparers are promising large telephone refunds to attract clients, individuals have been making mistakes on their refund calculations too. Some erroneously thought they could receive a refund for their entire telephone bill, rather than just the 3 percent federal excise tax. Others computed 3 percent of their most recent telephone bill--a process that doesn't work because telephone rates and charges have changed dramatically over the last few years, Williams said.
When using tax preparers, individuals can protect themselves by choosing those who promise in writing to absorb any costs imposed by the IRS for mistakes. They should also select preparers that are licensed, trained and are required to attend continuing education, Hales said.
That would include certified public accountants, enrolled agents and tax attorneys.
"To be a tax preparer, anyone can hang up a shingle," said Byram Tichenor, a special agent in charge of investigating criminal activities. He said fraud is rising and preparers sometimes reach too far because those who deliver larger refunds attract customers.
He said people should be suspicious if a tax preparer promises a refund before examining your records or promises a higher refund than other preparers. Also beware if the fee you pay for tax preparation is based on the amount of the refund.
Taxpayers should never sign a blank tax return. If they do, they will be responsible for whatever goes in the return, and the tax preparer will have no responsibility.
Apart from fraud, taxpayers should also be leery of preparers who offer refunds upfront. There is nothing illegal about this, but the fees are high and tax refunds generally arrive within a few weeks--making the upfront refund unnecessary.
Contact Gail MarksJarvis at firstname.lastname@example.org or leave a message at 312-222-4264.