Accounting for a Detoured Economist

As corporate taxes wind down, personal taxes come to crunch time, and another midterm looms large…my baby has a way of making me forget about all the stress in my life.

My firm sends a tax guide to all of our tax clients and requests that they fill out all the particulars we will need to complete their tax returns. If the man of the house is filling out the guide the handwriting tends to change (I assume to his wife’s handwriting) when we get to things such as children’s birthday, while when the ladies fill the form out the handwriting tends to be that of another person’s when questions of auto mileage and square footage of additions.

The Telephone Excise Tax Refund has taught me something else. The idea of a cost benefit analysis is not well understood by all small business owners. If it takes me two hours to get you a $150 tax refund…you have just lost money. People can sometimes get too emotional about taxes.

In 1898, a 3 percent federal telephone excise tax on long-distance calls was imposed to fund the Spanish-American War. This is one of the famous ‘lets impose a tax on the rich’ taxes that governments seem so fond of in democratic countries. At that time only the affluent could afford a phone so the tax went through with little notice and a high level of support. After the conflict ended, the tax was still collected and the money went into the U.S. Treasury’s general fund. Like most of these types of taxes, it never went away and eventually expanded to cover nearly all taxpayers. So a 100 year old tax on the rich for one of the shortest US wars in history was being assessed on every phone user in the information age until very recently when the IRS determined that this tax was not proper (note that the tax was repealed for technical reasons…not for the reasons previously stated). The Telephone Excise Tax Refund (TETR) is a result of the IRS decision and is a one-time payment available on the 2006 federal income tax return as a result of the repeal of this tax.

It has become very apparent that to actually go through years of phone bills to come up with the genuine amount owed by the IRS is a cumbersome and mostly useless exercise. Do nothing but check a box and get $30…do two hours of work to figure out how you were actually screwed by the tax system and get $45 bucks. I can think of a plethora of things I would rather do then earn $7.50 an hour looking at old phone bills. When a client is paying me the cost-benefit analysis is even worse. It’s almost a waste of time to ask the client whether they want me to research the actual amount of refund or just take the standard refund.

According to the IRS early tax returns, including those filed by tax professionals for their clients, show that about 30 percent of taxpayers are not requesting the telephone excise tax refund for which they may qualify. There is no excuse for a tax preparer to check a box to get $30 or $60 dollars. That should never be missed. If your tax preparer misses this they had better have a damn good reason, other than their clear incompetence.

In my research of this issue I found that even if you don’t need to file a tax return or owe no money, you may still be eligible to collect the refund. Use the new Form 1040EZ-T, Request for Refund of Federal Telephone Excise Tax, to choose the standard amount. Attach Form 8913 to Form 1040EZ-T if you use the actual amount. Also, some companies offer free e-filing of Form 1040EZ-T.

Update: Bean Counter Blog has noted the same problem here.

Bean Counter Blog notes…

So please take the extra 10 seconds to check your return and be sure you filled out the one required line. You don’t need to present proof to the IRS, so this could possibly be the easiest way to earn $30 to $60.

I am begining to think that this tax credit is a form of financial darwinism. If you are too stupid to check a box and receive $60 then maybe the government can better decide how to spend your money than you can. Bill Gates is exempted from the above comment…it cost him more money to take the time to check the box and can not be blamed for ignoring what must seem like a penny on the ground to him.