Many businesses didn't claim tax refund

As of last November less than 6 percent of business taxpayers filing returns had made claims for the Telephone Excise Tax Refund, a once-only payback for a now defunct tax, according to the Treasury Inspector General for Tax Administration.

The most far-reaching tax refund in the history of the Internal Revenue Service was estimated to affect between 13.9 million and 15.9 million business taxpayers.

But the inspector general report made public Thursday said only 720,000 of the 12.8 million business taxpayers who had filed returns -less than 6 percent -had made phone tax refund claims, and the refunds associated with those claims amounted to only $876.6 million, or 17.5 percent of the $5 billion collected.

The report said it was unclear why so few businesses claimed the refund, but it offered theories that small businesses believed the work associated with making the claims outweighed the benefit, didn't think they could come up with the necessary records or were unaware of the credit.

Many may still be eligible to file claims, the report said, but "we believe a significant amount of the telephone excise tax collected by the IRS from businesses might never be refunded."

The IRS did slightly better with individual taxpayers, dispersing about half the $8 billion the IRS had expected to pay them, the inspector general said in a report last October. The tax agency had estimated the refund would affect 145 million to 165 million taxpayers.

The telephone excise tax was created in 1898 to fund the Spanish-American War.

After the government lost several lawsuits disputing the legitimacy of the tax, the IRS in 2006 announced it would stop collecting the tax and implemented a program to refund the portion of their telephone excise taxes paid over long-distance or bundled telephone services between February 2003 and August 2006.

Most individual taxpayers followed the advice of the IRS and took a standard refund of $30 to $60 rather than bother searching for old phone bills. Businesses too were given the option of completing a form using the actual amount of refundable taxes paid or using a simplified formula to estimate their refund. The refund was capped at 2 percent of telephone expenses for businesses with 250 or fewer employees, and 1 percent for larger businesses.