Written by Malinda Just Monday, 31 December 2007 04:22
Less than two weeks ago, Congress had yet to pass a “patch” that would allow millions of taxpayers to avoid filing an Alternative Minimum Tax in addition to their regular tax forms.
Last Wednesday, however, Congress passed the AMT patch that raised the qualifying gross income minimum from $45,000 to a little more than $60,000. And while the crisis is past for this year, Congress’ late action will potentially delay refunds across the country, according to tax preparers.
If the patch had not been passed, it would have opened “a whole new range of people potentially that would be affected by it,” said Bryce Wichert, a certified public accountant and owner of Accounting & Financial Initiative LLC in Hillsboro.
About the AMT
The AMT was developed in 1969 with the Tax Reform Act. According to the Internal Revenue Service Web site, the AMT’s purpose was to target a small number of high-income taxpayers who would claim so many deductions that they owed little or no tax.
“If a taxpayer has a lot of itemized deductions to where it eliminates a lot of taxes for them, the alternative minimum tax may kick in and they would have to pay the minimum tax anyway,” Wichert said. “What it does is start disallowing some of your deductions and says, ‘Well, you’ve got to pay tax anyway.’”
AMT patch delays
While tax season is expected to start on time for the majority of taxpayers despite the late AMT resolution, as many as 13.5 million taxpayers using five forms related to the AMT legislation will have to wait to file tax returns until Feb. 11.
The delay will affect taxpayers using any of the following forms:
Form 8863, Education Credits.
Form 5695, Residential Energy Credits.
Form 1040A’s Schedule 2, Child and Dependent Care Expenses for Form 1040A filers.
Form 8396, Mortgage Interest Credit.
Form 8859, District of Columbia First-Time Homebuyer Credit.
The IRS is also reminding taxpayers that printed tax packages, which will begin arriving in the mail around New Year’s Day, were printed in November, before the AMT changes were enacted. So, the packages reflect the law that was in effect at the time of printing.
Potential refund delays
Even if you don’t fall under the Feb. 11 delay, refunds may be delayed, according to Bill Glazner a partner and certified public accountant with Adams, Brown, Beran and Ball in Hillsboro and McPherson.
“What I’m hearing from one group is they don’t think that those filers will be delayed,” Glazner said. “Others have said that they feel like the IRS is going to freeze all refunds until they fix the problem. I can’t tell you with any certainty as to which direction that will actually go.
“I have not heard anything directly from the IRS as to how they are going to handle it. They’ve sent out communication that they’re working on this and will do their best to avoid any delays. That’s pretty much where they left it.”
Although refunds may be delayed this year, taxpayers not using any of the five forms delayed by the AMT patch can still file early this year.
“If they don’t need that required form, they can go ahead and file their return, it just may not be processed as quickly as it may have been otherwise,” Glazner said. “That will be the difference. It will depend on how the IRS chooses to handle it and how quickly they are able to move on this.”
Taxpayers can use the paper filing method or e-file to file their tax returns. While refund delays are expected, e-filing will reduce the wait time compared to traditional paper filing.
“E-filing is always quicker than paper filing,” Glazner said. “You’re going to have more luck e-filing, as far as speed in processing and speed in refunds, than you are with paper filing.”
Taxpayers are also being cautioned by the IRS to be on their guard for refund scams, Wichert said.
“IRS is cautioning that all delays will be industry-wide for the AMT thing, and taxpayers should be aware of possible scams from those claiming that they can get refunds faster,” Wichert said. “They can’t, because if the IRS is delayed, that’s just the way it’s going to be.”
Glazner added that he hopes people who claim to assist taxpayers will work with a high ethical standard.
“I hate to predict what people will try and do,” he said. “But I would hope that everybody holds themselves up to a little higher ethical standard than that.
“Regardless of who you go to, you can’t control how quickly the IRS will respond,” he added. “Once (the tax return) is transmitted, it’s up to the IRS to complete that process—and we have no control over that, and neither does anyone else.”
For more information on the AMT or other tax-related questions, visit the IRS Web site, www.irs.gov.