Cecil C. Seymour is a 646-year-old widower. He had income for 2013 as follows: P
ID: 2505886 • Letter: C
Question
Cecil C. Seymour is a 646-year-old widower. He had income for 2013 as follows:
Pension from former employer $39,850,
Interest income from Alto Nationl Bank 5,500,
Interest income on City of Alto bonds 4,500,
Dividends received from IBM 2,000,
Collections on annuity contract he purchased from Great life insurance 5,400,
Social Security benefits 14,000,
Rent income on townhouse 9,000
The cost of the annuity was $46,800, and Cecil was expected to receive a total of 260 monthly payments of $450. Cecil has received 22 payments through 2013.
Cecil's 40-year-old daughter, Sarah C. Seymour, borrowed $60,000 from Cecil on January 2, 2013. She used the money to start a new business. Cecil does not charge her interest because she could not afford to pay it, but he does expect to eventually collect the principal. Sarah is living with Cecil until the business becomes profitable. Except for housing, Sarah provides her own support from her business and $1,600 in dividends on stock that she inherited from her mother.
Other relevant information is presented below:
Explanation / Answer
What is the telephone tax refund?
The telephone tax refund is a one-time payment available on your 2006 federal income tax return, designed to refund previously collected federal excise taxes on long-distance or bundled service. It is available to anyone who paid such taxes on landline, wireless, or Voice over Internet Protocol (VoIP) service.
Why is the government refunding these taxes?
Several recent federal court decisions have held that the tax does not apply to long-distance service as it is billed today. The IRS is following these decisions and refunding the portion of the tax charged on long-distance calls. The IRS is also refunding taxes collected on telephone service under plans that do not differentiate between long distance and local calls including bundled service.
The telephone tax continues to apply to local-only service, and the IRS is not refunding taxes charged on local-only service.
The IRS will refund the taxes paid on long-distance or bundled service billed to taxpayers for the period after Feb. 28, 2003, and before Aug. 1, 2006. Taxpayers should request this refund when they file their 2006 tax returns.
Who is eligible to request the telephone tax refund?
In general, any individual, business or nonprofit organization that paid the tax for long distance or bundled service billed after Feb. 28, 2003, and before Aug. 1, 2006, is eligible to request the refund.
What is a refund-eligible bundled service?
Bundled service is local and long distance service provided under a plan that does not separately state the charge for the local telephone service. Bundled service includes plans that provide both local and long distance service for either a flat monthly fee or a charge that varies with the elapsed transmission time for which the service is used. Telecommunications companies provide bundled service for both landline and wireless (cellular) service. If Voice over Internet Protocol service (VoIP) provides both local and long distance service and the charges are not separately stated, such service is bundled service.
The method of sending or receiving a call, such as on a landline telephone, wireless (cellular), or some other method, does not affect whether a service is local-only or bundled.
I made all my long-distance calls using prepaid telephone cards. Can I request the telephone tax refund?
Usually, no. In most cases, when you buy a prepaid phone card from a retailer, that business pays the tax. Because the business was liable for the tax, it, not you, would be entitled to request the refund.
Phone cards have been marketed in various ways. So, in some cases, you may have been charged the tax. If you bought prepaid phone cards, and you have a bill or receipt separately listing the three-percent federal excise tax on long-distance or bundled service, you are eligible to request the telephone tax refund.
If you "recharged" your prepaid phone card by purchasing additional minutes directly from the phone company, you are eligible to request the telephone tax refund. Generally, the phone company charges will show up on your credit card bill. The excise tax would be 3 percent of the amount shown on the credit card bill.
I made all my long-distance calls using a prepaid cell phone. Can I request the telephone tax refund?
Usually, no. The same rules that apply to prepaid phone cards also apply to prepaid cell phones.
In most cases, when you buy a prepaid cell phone from a retailer, that business pays the tax. Because the business was liable for the tax, it, not you, would be entitled to request the refund.
Prepaid cell phones have been marketed in various ways. So, in some cases, you may have been charged the tax. If you bought a prepaid cell phone, and you have a bill or receipt separately listing the three-percent federal excise tax on long-distance or bundled service, you are eligible to request the telephone tax refund.
As in the case of prepaid phone cards, if you "recharged" a prepaid cell phone by purchasing additional minutes from the phone company, you are eligible to request the telephone tax refund. Generally, the phone company charges will show up on your credit card bill. The excise tax would be 3 percent of the amount shown on the credit card bill.
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