By George L. Yaksick, Jr. and Brant Goldwyn, Washington Staff Writers
The increasing likelihood that the IRS will not be able to start processing returns until midway through the 2008 filing season could swamp the servers of software companies when tax practitioners release stockpiled returns, according to industry professionals. Moreover, the IRS itself is urging quick action from Congress to avoid a host of other troublesome issues likely to be caused by its delay in passing last-minute legislation.
Delay Likely
The IRS has warned that it will need at least 10 weeks to reprogram its computer systems for the expected AMT patch legislation needed for the 2007 tax season. Congress left Washington, D.C. for its Thanksgiving recess without passing an AMT patch. Congress briefly reopened on December 3 before closing again on December 4 for the start of Hanukkah; on December 5, Congress meets again with about a week to finish its business before adjouning for its planned Christmas break. While many observers predict that Congress will pass a patch before the end of the year, there is insufficient time for the IRS to reprogram its computers before the start of the filing season.
The National Association of Enrolled Agents told the leaders of the Senate Finance Committee in a November 27, letter that the 2008 filing season will be shortened. "It appears that the filing season may well start in mid-February for the 23 million taxpayers on the AMT bubble plus millions more taxpayers whose credits will be treated differently after the AMT patch is passed."
Without an AMT patch, the 2007 exemption amounts for married couples filing jointly, single individuals and married couples filing separately are $45,000, $33,750 and $22,500. The patch passed by the House would set the 2007 exemption amounts at $66,250 for married couples filing jointly; $44,350 for single individuals and heads of household; and $33,125 for married couples filing separately. The patch also would allow most nonrefundable personal credits to offset AMT.
Meanwhile, the IRS Oversight Board urged Congress "to take quick action" because the Board "is gravely concerned about the serious risks to the 2008 filing season if legislation to change the AMT is delayed. A delay threatens the IRS' ability to process returns and issue refunds in a timely manner and imposes significant burden on taxpayers," the Board wrote in a November 26 letter to the leaders of the Congressional tax-writing committees.
The Board highlighted other impacts of the delay:
- IRS submission processing costs will increase.
- The IRS will owe additional interest because it will be less likely to meet the 45-day limit for issuing refunds.
- The error rate will increase because of greater paper processing, increasing costs and burdens of error correction for both the IRS and taxpayers.
- The demand for Refund Anticipation Loans will increase for former electronic filers.
- Telephone volume will increase on toll-free customer service lines, possibly leading to worse service
- A difficult filing season may lead to decreased voluntary compliance.
April Crash
In the final hours of the 2007 filing season, the servers of Intuit, providers of TurboTax software, could not handle the crush of last-minute filers. The servers crashed and returns were not filed. The IRS gave affected individuals additional time to file without penalty.
"We could see a repeat of April," said Frank Degen, past president and current chair of the government relations committee of the NAEA. "That was just one company," Degen said. The potential release of millions of stockpiled returns could be a nationwide problem, he warned.
Tax Planning
Patching the AMT makes meaningful, long-term tax planning impossible for millions of taxpayers, the NAEA told lawmakers. "Taxpayers expect things to go smoothly. The patch really doesn't resonate with them until they talk with their tax professional," noted Degen.
- Related items:
- Income Tax Refunds Delayed Due To Congress' Inaction over AMT Patch
- Congress Begins Work on Temporary AMT Patch, Extenders Bill
- Tax Rate Projections for 2008
- Senate Finance Panel Hears Solutions for AMT Problem
- IRS Begins Tax Season With Important Issues Unresolved
- Permanent AMT Fix Poses Difficult Choices
Posted December 6, 2007.
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