The Internal Revenue Service warned lawmakers of filing-season delays and operational challenges in 2011 if Congress doesn’t act this month on tax breaks that expired at the end of 2009.
The expired tax breaks include deductions for state and local sales taxes, college tuition, local property taxes and out-of-pocket teacher expenses, according to a letter sent today from IRS Commissioner Douglas Shulman to the heads of the tax-writing committees in Congress.
“It would be extremely detrimental to the entire tax-filing season and to tens of millions of taxpayers if tax law changes affecting 2010 are deferred and then retroactively enacted in 2011,” Shulman said.
The expired tax breaks are being discussed as part of broader conversations in Congress this month about extending income-tax cuts that are scheduled to expire at the end of this year. So far, it is unclear whether Congress will address all of the expired and expiring provisions together or separately.
Congress this year may address two sets of tax provisions that expired at the end of 2009. One is the alternative minimum tax, a parallel tax system that could impose higher tax burdens on 21 million taxpayers for 2010 unless Congress acts.
Tax-writers in Congress sent Shulman a letter on Nov. 9 saying they planned to enact a “patch” that would prevent the tax from expanding as scheduled. In response, Shulman wrote today that IRS computers would be programmed as if such legislation will be completed.
‘Reprogram Our Computers’
“Of course, if legislation has not passed by the end of this year, our computers will have been programmed incorrectly, and we will need to delay filing for these individuals as we reprogram our computers in accordance with current law,” he wrote.
The second set of issues relates to expired tax breaks. They include business provisions such as the research and development tax credit along with the individual provisions that Shulman addressed in his letter. The roughly $30 billion package of tax breaks has been stalled this year because of a legislative fight over whether they should be paired with revenue-raising measures to offset their effect on the federal budget deficit.
The IRS computers have been programmed as though the expired extenders -- other than AMT -- will not be extended.
Shulman wrote that starting the tax filing season in January with one set of rules and then changing the rules would present “an unprecedented and daunting operational challenge” that would strain the IRS and potentially require millions of taxpayers to file amended returns.
“These tax provisions can be distinguished from other pending tax legislation because they are so critical that taxpayers experience a smooth tax filing season starting in January,” Shulman wrote.