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IRS Warns of Filing Delays If Congress Ignores AMT Fix

Taxpayers would face “serious repercussions” if Congress doesn’t act by Dec. 31 to prevent the alternative minimum tax from expanding, according to the Internal Revenue Service.

About 28 million taxpayers would face an unexpected liability for tax year 2012 that has been estimated at $92 billion. Furthermore, the IRS would also need to reprogram its computer systems, delaying tax filing for 60 million taxpayers from January 2013 until “late March 2013, if not even later,” Steven Miller, the acting IRS commissioner, wrote in a letter today to Senator Max Baucus, a Montana Democrat who’s chairman of the Senate Finance Committee.

“Tens of millions of these taxpayers would unexpectedly have to pay additional income tax for 2012, leaving them with a balance due return or a much smaller refund than expected,” he wrote. “For millions of other taxpayers, refunds would be delayed.”

He sent identical letters to the other top tax writers on Capitol Hill, Senator Orrin Hatch of Utah, the top Republican on the Senate Finance Committee, and Michigan Representatives Dave Camp and Sander Levin, the Republican chairman and the top Democrat, respectively, on the House Ways and Means Committee.

Parallel System

The expansion of the AMT is part of the $607 billion fiscal cliff of tax increases and spending cuts that Congress is trying to avert.

The alternative minimum tax operates as a parallel tax system. Taxpayers must pay the higher of what they owe under the regular tax system or the AMT, which disallows some deductions and exemptions. It disproportionately affects taxpayers with large families and those in high-tax states such as New York and New Jersey.

Lawmakers in both parties want to enact a so-called patch to prevent the AMT from expanding beyond about 4 million households. The issue is bound up in other disputes over taxes and spending.

The income thresholds used to calculate the tax aren’t indexed for inflation in the permanent tax code and have been increased by Congress only on a temporary basis. The last such patch expired at the end of 2011.

A delay in tax filing caused by the failure to enact an AMT patch would have a significant effect, said Michael Mundaca, co-director of national tax at Ernst & Young LLP.

“Refunds are significant and a delay could take more money of the economy,” said Mundaca, who was the Treasury Department’s top tax policy official earlier in President Barack Obama’s administration.

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