Potential late action this year by Congress on expired tax provisions might mean significant delays and complications for taxpayers filing returns in early 2013, National Taxpayer Advocate Nina Olson wrote in a report released today.
Dozens of tax provisions that affect individuals expired at the end of 2011 and haven’t been renewed. These include the deduction for state and local sales taxes, the deduction for teachers’ out-of-pocket expenses and a so-called patch that prevents the alternative minimum tax from hitting an additional 26.6 million households.
After Congress acts, the Internal Revenue Service must create tax forms, work with private tax-preparation software developers and write internal computer code that allows the agency to accept tax returns, which it typically begins doing in mid-January.
“Because of the magnitude of these challenges, and the uncertainty about such a large number of important provisions, the 2013 filing season is already at risk,” wrote Olson, who is an independent voice for taxpayers within the IRS.
In addition to the already-expired provisions, tax rates on income, capital gains, dividends and estates will increase in January. Those changes would affect paycheck withholding in January and not the returns being filed for 2012.
All of the expired and expiring tax provisions are part of the $607 billion fiscal cliff of spending cuts and tax increases facing the U.S. Congress.
Lawmakers in both parties have said they don’t expect Congress to act until after the Nov. 6 election on most or all of the tax-and-spending issues that comprise the fiscal cliff.
Members of the tax-writing committees have been discussing the expired provisions, which include corporate tax breaks such as the research and development tax credit. Neither the House nor Senate has advanced a bill.
Late or retroactive tax changes make it difficult for taxpayers to plan for tax incentives or have the correct amount of money withheld from their paychecks, Olson wrote.
“The burdens associated with late-year changes could reduce tax compliance, as some taxpayers ’give up’ when faced with the extra complication,” she wrote.