A late fix to AMT may stall refunds

PERSONAL FINANCE

Likely late fix to AMT may delay refunds

November 13, 2007|By EILEEN AMBROSE

Not again.

You may recall that Congress last year extended several tax breaks too late to meet the printing deadline for tax forms. Tax filers had to know to claim those tax breaks on lines for other deductions.

Congress is well on its way to blowing this year's printing deadline, too.

Legislators have yet to agree on a temporary fix to the alternative minimum tax. Without it, an extra 21 million tax filers will be hit with the AMT in the coming filing season and pay on average $2,000 more in federal taxes.

Politicians don't want to anger that many voters, so a fix is almost assured. That means you won't have to change your year-end tax planning.

But if you're counting on an early refund, you could be disappointed.

The Internal Revenue Service would need time to get tax forms and computer systems updated to comply with a new tax law. Treasury Secretary Henry M. Paulson Jr. warned that if the law is enacted in mid-December or later, about $75 billion in refunds will be delayed for those filing returns before April.

The House last week passed legislation on the AMT, but the Senate may not be so quick to act.

"It's starting to look like we will have another mess," says Mark Luscombe, principal analyst with CCH, a provider of tax information.

Congress created the AMT decades ago after 155 rich people got away without paying taxes. Filers are supposed to figure their taxes under the regular income tax and the AMT, and pay the higher of the two.

But the AMT was never adjusted for inflation, so it's been snagging even middle-income households in recent years.

The tax designed to catch 155 scofflaws ensnared about 4 million filers last tax season.

Congress periodically makes short-term fixes to the AMT to reduce the number of filers owing it. The last patch has expired. The proposed fix includes raising the amount of income shielded from the AMT. But under the Democrats' pay-as-you-go system, the hold-up has been how to pay for this tax relief.

"The Republicans want to fix AMT, but don't want to pay for it the way the Democrats have come up to pay for it," Luscombe says.

Clint Stretch, managing principal of tax policy at Deloitte Tax, says it appears that legislation won't get to the president's desk until sometime in December.

The AMT legislation affects a dozen tax forms. Once it becomes law, the Internal Revenue Service will need three weeks to update forms online and a few more weeks to get printed forms out. It will take about 10 weeks to update IRS computers to process affected returns.

Even if there's no possibility of your owing AMT, you could be affected by all this.

Acting IRS Commissioner Linda Stiff told accountants last week that the processing of returns for 50 million taxpayers could be delayed if the tax law change was postponed until December. Half of those are filers affected by the AMT patch. The rest take certain credits that also are part of the legislation.

On top of that, Stiff said, millions of others could find their refunds delayed because the IRS is behind in processing other returns.

What's a taxpayer to do?

H&R Block's Jackie Perlman says the big decision will be when to file. Go ahead and file early if you are due a refund, she says. You can always amend your return later if needed.

But if you will owe a lot of money without the AMT fix in place, delay filing until new forms are out and the computers updated, she says.

Also, stay tuned. It's possible that the Senate will surprise us all and move quickly to avoid another tax season of confusion.

Questions? Comments? Want to share your own financial tips with readers? Contact Eileen Ambrose at 410-332-6984 or by e-mail at eileen.ambrose@baltsun.com.

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