WASHINGTON — The Internal Revenue Service announced today that the upcoming tax season is expected to start on time for everyone except certain taxpayers potentially affected by late enactment of the Alternative Minimum Tax “patch.”

Following extensive work in recent weeks, the IRS expects to be able to begin processing returns for the vast majority of taxpayers in mid-January. However, as many as 13.5 million taxpayers using five forms related to the Alternative Minimum Tax (AMT) legislation will have to wait to file tax returns until the IRS completes the reprogramming of its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for taxpayers to begin submitting the five AMT-related returns affected by the legislation. The February date allows the IRS enough time to update and test its systems to accommodate the AMT changes without major disruptions to other operations related to the tax season. As the IRS has said previously, it will take approximately seven weeks after the AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file their returns until Feb. 11, the effect of the delay may be lessened by the fact that under previous filing patterns only between 3 million to 4 million taxpayers file returns with the five affected forms during these early weeks in the filing season.

“We regret the inconvenience the delay will mean for millions of early tax filers, especially those expecting a refund,” said Linda Stiff, Acting IRS Commissioner. “We’ve taken extraordinary steps to figure out a way that we can start the filing season on time for most taxpayers, including some using AMT-related forms. Our goal has always been to make sure we can accurately process tax returns while getting refunds to taxpayers as quickly as possible.”

The February delay caused by the AMT patch will affect taxpayers using these five forms:

• Form 8863, Education Credits
• Form 5695, Residential Energy Credits
• Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers
• Form 8396, Mortgage Interest Credit
• Form 8859, District of Columbia First-Time Homebuyer Credit

While these five forms require significant additional reprogramming due to the AMT patch, the IRS has been able to reprogram its systems to begin processing seven other AMT-related forms, including Form 6251, Alternative Minimum Tax – Individuals. Taxpayers filing these seven forms should not experience delays in filing, and the IRS expects to begin processing those returns starting on Jan. 14.

Electronic returns involving those five forms will not be accepted until systems are updated in February; similarly, paper filers should wait to file as well. All other e-file and paper returns will be accepted starting in January. The IRS urges affected taxpayers to file electronically in order to reduce wait times for their refunds. E-file with direct deposit gets refunds in as little as 10 days, while paper returns take four to six weeks.

“Efile is a great option for everyone, especially if they are affected by the AMT,” said Richard Spires, IRS Deputy Commissioner for Operations Support. “Filing electronically will get people their refunds faster, and e-file greatly reduces the chances for making an error on the AMT or other tax issues.”

In addition to filing electronically, the IRS urges taxpayers to take simple steps to avoid problems:

Taxpayers filing electronically should make sure to update their tax software in order to get the latest AMT updates.

Taxpayers with $54,000 or less in Adjusted Gross Income can use Free File to electronically file their returns for free. Free File will only be available by visiting the official IRS web site at IRS.gov. In all, 90 million taxpayers qualify for this free service.

Taxpayers who use tax software to print out paper copies of tax forms should make sure they update their software before printing out forms. Taxpayers using paper forms can also visit IRS.gov to get updated copies of AMT forms.

The IRS has created a special section on IRS.gov to provide taxpayers with additional information and copies of updated forms affected by the AMT. In recent days, the IRS has posted updated copies of all forms affected by the late enactment of the AMT patch by Congress.

The IRS also reminds taxpayers that printed tax packages, which will begin arriving in the mail around New Year’s, went to the printer in November before the AMT changes were enacted. The packages reflect the law in effect at the time of printing. The tax packages include cautionary language to taxpayers that late legislation was pending.

The IRS is also working closely with tax professionals and the tax preparation software community to make sure they can help taxpayers with all of the latest developments on the enactment of the AMT patch and other tax changes.

“The IRS is going to continue to do everything it can to make this a fully successful filing season for the nation’s taxpayers,” Stiff said. “We will continue to work to keep taxpayers up to date and make this situation as easy as possible for everyone.”

The alternative minimum tax, or AMT, is calculated alongside the income tax, with the taxpayer paying the higher of the two calculations.

The AMT was passed in 1969 in a bid to close tax shelters for filers with incomes above $200,000, the equivalent of $1.2 million today. But it wasn’t indexed to rise with inflation, so what was a fortune then is upper-middle income today in expensive parts of the nation.

Congress typically freezes the number of AMT payers at 4 million by passing annual legislation to “patch” the AMT. Absent the fix, about 70 percent of tax filers with incomes between $75,000 and $100,000 could face the AMT.

But “patching” the AMT deprives the treasury of about $50 billion that the AMT would otherwise raise, and that complicates Congress’ effort to reduce budget deficits.

The Democrats running Congress are feuding over the AMT patch. The House wants to offset the lost AMT revenue with taxes on private equity firms and other businesses. But Senate Democrats favor passing a fix that wouldn’t offset the lost revenue and thus would add $50 billion to the federal deficit.

Bush warned Monday that “the longer they delay, the more likely it is that there’s $75 billion of refund checks that will be late” in arriving. That’s because tax forms can’t be printed and prepared until Congress finishes changing the tax law. The Internal Revenue Service won’t be able to process the refunds of Americans who file mortgage interest credits or any one of the 11 forms and deductions used in calculating the AMT.

Q: Why are $75 billion in refund checks at stake?

A: The IRS says it needs up to seven weeks from the passage of any AMT fix to finish changing electronic and paper tax forms. Bush’s numbers imply that the tax filing season, which normally begins on Jan. 13, wouldn’t start before Feb. 18.

Q: Will Congress pass a fix this year?

A: There’s no guarantee, but House and Senate leaders pledge to do so before they recess this weekend for the holidays.

Q: If they succeed, when will the tax season begin?

A: Seven weeks from the end of this week would be the second week in February. That would be a four-week delay from the scheduled Jan. 13 start of tax filing. But Democrats insist that by law, companies have until Jan. 31 to send employees their W-2 forms. So technically, they say, the delay is really only about two weeks.

Q: Will the IRS extend the April 15 deadline to file taxes because of the AMT delay?

A: Right now, there’s no discussion of that. The IRS is ramping up computer systems and manpower to make up for the delay in its ability to process tax filings. The agency historically gets refunds to electronic filers more quickly than to paper filers.

Q: Who gets hurt by the delay?

A: The IRA Oversight Board estimated in late November that if tax filing season began on Feb. 4, it would result in delays for 15.5 million tax refunds out of about 130 million tax filings. Almost 12 percent of all tax filers could see their refunds delayed, totaling about $39 billion.

Q: Will electronic filers be spared delays?

A: No. The IRS said that by last Feb. 16, it had received 38 million tax returns, and almost 32 million were owed refunds. About 80 percent of these were filed electronically. That suggests that electronic filers will be delayed in greater numbers than paper filers.

Q: Which 12 forms are affected by the AMT delay?

A: According to the IRS Oversight Board of the House Ways and Means Committee, they are Form 6251 – AMT form; Form 1040, Schedule R – credit for the elderly or disabled; Form 1040-A, Schedule 2 – child and dependent care credit; Form 1116 – Foreign Tax Credit; Form 2441 – Child and Dependent Care Credit; Form 5695 – Residential Energy Credits; Form 8396 – Mortgage Interest Credit; Form 8839 – Qualified Adoption Expenses; Form 8859 – District of Columbia’s First-Time Homebuyer Credit; Form 8863 – Education Credits; Form 8880 – Credit for Qualified Retirement Savings Contributions; Form 8801 – Credit for Prior Year AMT.

Source: The Sacromento Bee
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Call Kevin G. Hall, McClatchy Washington Bureau, (202) 383-6038.