Failure by Congress to act on the alternative minimum tax by year’s end will lead to “significant” delays in tax filing and a strain on taxpayers, said Steven Miller, the Internal Revenue Service’s acting commissioner.
The alternative minimum tax, or AMT, is part of the so-called fiscal negotiations in Congress. Leaving it untouched would affect taxpayers early in 2013, because its reach would be expanded for returns filed for tax year 2012.
Without action by Congress, the parallel tax system would affect 32.4 million households for tax year 2012, up from 4 million in 2010, according to the Congressional Research Service. It would increase tax collections by $92 billion, shrinking or erasing many taxpayers’ expected refunds.
“Taxpayers and the IRS need to know what the tax provisions are for 2012, so that you know what you owe and we know how to process your return in January,” Miller said at a tax conference today in Washington, in his first major speech since becoming acting commissioner last month.
Also, the IRS’s computer systems have been programmed assuming that Congress will act this year to prevent the AMT’s expansion, leading to a delay in the agency’s ability to accept tax returns if lawmakers do nothing. He didn’t set a firm deadline for action.
“There’s no magic time,” he said. “As soon as possible would be great.”
Because of the tax’s structure, which limits the benefit of the state and local tax deduction, it tends to have a disproportionate effect in high-tax states such as California, New York and New Jersey. The number of AMT payers in New York would rise to 3.9 million from about 493,000, and in California would reach 5.9 million, up from about 746,000, according to the Congressional Research Service.
Lawmakers in both parties want to prevent the AMT’s expansion. The issue has been caught up in the disagreement on other budget issues, such as whether to extend tax cuts for top earners.
In a letter to congressional tax-writers last month, Miller said that it was “entirely possible” that “more than 60 million taxpayers” would be unable to file their returns until at least late March if Congress doesn’t act. That’s more than two months after the scheduled start of the filing season and just a few weeks before the mid-April deadline.
Congress must pass language blunting the AMT’s effect, because taxpayers would be “really cranky” about delayed filing and smaller or nonexistent refunds, said Kenneth Kies, a tax lobbyist and former chief of staff of the Joint Committee on Taxation.
“This is a doomsday scenario for the IRS,” Kies said today on a webcast sponsored by KPMG LLP.
Congress created the forerunner to the AMT in 1969 in response to news that 155 high-income taxpayers owed no income taxes.
Taxpayers must calculate their liability under the AMT and the regular tax and pay whichever is greater. The AMT has an exemption that isn’t indexed for inflation permanently, leading Congress to enact so-called patches that prevent the full reach of the tax from taking effect.
In addition to the AMT, other tax breaks for individuals expired at the end of 2011 and haven’t been extended, including deductions for teachers’ out-of-pocket expenses and state sales taxes.