Phone tax refunds go uncollected

WASHINGTON - What if the government tried to give American taxpayers some of their money back, but the taxpayers didn't seem to want it?

That's what happened this year, as taxpayers collected only about half the $8 billion the IRS expected to pay them in its phone tax refund, the most far-reaching refund in the agency's history.

The telephone excise tax was created in 1898 to fund the Spanish-American War. After losing several lawsuits disputing the legitimacy of the tax, the IRS created a program to refund the 3 percent tax paid on long distance or bundled service from March 2003 to July 2006.

The tax agency estimated the one-time refund would affect 145 million to 165 million taxpayers.

But as of August, the IRS had repaid just over half, according to the Treasury Inspector General for Tax Administration. The report cited two main reasons for the lower-than-expected refunds:

Many taxpayers, following the advice of the IRS, took a standard $30 to $60 refund based on the number of exemptions claimed.

Despite what the report said were generally good efforts by the IRS to communicate the program to taxpayers, many remained uninformed.

Separately, the Government Accountability Office issued a report concluding the IRS loses money because of problems in managing its paper case files.

The GAO cited several District Court cases where the IRS lost more than $40,000 in revenue because it could not locate the file.