This sounds like one of these phony internet stories but I checked and it really is true. The IRS is giving a refund to anyone who has paid long distance taxes (which is just about every American household) between March 1, 2003 and July 31, 2006. This is because the IRS had been collecting these taxes but a court ruling made the tax invalid.

The tax itself goes back to the Spanish American War. At the time, phones were a rare commodity that mostly only the rich could afford. The government needed to pay for the war. So a long distance excise tax looked like a good way to tax the rich to pay for the war. Over the years, the tax remained but instead of it being a rich man’s tax, as phones became more ubiquitous it became a tax that was collected from virtually everyone. This is where it gets tricky. The original law said that the tax had to be determined based on the length of the call and the distance of the call. So a New Yorker calling Philadelphia would pay less tax on their 15 minute call than a Floridian calling San Francisco. But since no one pays for their calls based on distance anymore, the IRS switched to a per-minute tax. Opponents of the tax charged that this made the tax illegal since it violated the requirements of the original law and the courts agreed. Since Congress refused to change the law, the IRS decided that they would give up the tax.

However, what about the taxes that had been previously collected since 2003 (statute of limitations on tax refunds)? The IRS agreed to a one-time tax credit so that taxpayers wouldn’t have to dig out all their old telephone bills to figure out what they should get back (although that still remains an option if you want it).

On your 2007 taxes, there will be a line on your tax form (which line depends on the form) to claim your credit. How much of a credit you get depends on the size of your household.

one exemption, the standard refund amount is: $30
two exemptions, the standard refund amount is: $40
three exemptions, the standard refund amount is: $50
four exemptions or more, the standard refund amount is: $60

If you don’t claim it in 2007, you will not be able to claim it in the future. This is a one-time, one-chance refund. Note that even if you don’t have to file a tax return, you must still fill out form 1040EZ-T to get this refund. Spread this around.

Links:

The IRS FAQ on the Telephone Tax Refund

The IRS FAQ on the Telephone Tax Refund for Small Businesses and Tax Exempt Organizations