Trifecta Bill Delay Could Lead To Tax Compliance Chaos

by Mike Godfrey, Tax-News.com, Washington

15 September 2006

Senate Finance Committee Chairman Chuck Grassley is calling for swift passage of a series of expired tax cuts, warning that taxpayers face confusion and compliance problems if the legislation is not passed soon.

The provisions in question expired at the end of 2005 and include the state and local sales tax deduction, and deductions for college fees and teachers. According to Grassley, they effect 8.6 million taxpayers.

The tax cut extensions, which were left out of a tax cut bill passed by Congress in May, have been included in the so-called 'trifecta' bill along with estate tax cuts and a minimum wage increase. While the measures on their own have broad bi-partisan support, Democrats have dug their heels in over the inclusion of estate tax cuts in the bill, and three Republican dissenters meant that the bill failed to gain the 60 Senate votes necessary for its approval.

Senate Majority Leader Bill Frist, a supporter of the trifecta bill, is to reschedule a vote, but a date has yet to be finalised.

"Six weeks have passed since the Trifecta was last considered, and my concern for the millions of families and individual taxpayers who regularly claim the benefits of this tax relief has grown," Grassley said in a statement.

Grassley went on to warn that a delay beyond the anticipated Congressional recess date of September 29, 2006, will cause "hardship, tax compliance problems and confusion" for these taxpayers. Congress is unlikely to return until November 13 following the mid-term elections.

According to a Finance Committee memo released by Grassley, delays in enacting the 'extenders' legislation will have a significant adverse impact on tax administration because there is precious little time for tax forms to be reprinted to reflect the changes. The 2006 draft tax forms do not currently include the expired tax provisions and the IRS must provide the contents of the tax form packages to the printing companies by November 7, 2006 in order to ensure that tax form packages are mailed by December 27, 2006. However, since it takes two to three weeks for the IRS to prepare the changes, the law must be finalized by October 15.

If the deductions are extended after the printing process is complete, the IRS will issue supplemental instructions on how to enter the deductions as write-in entries on the tax forms. This is likely to increase the number of taxpayer errors and could lead to many failing to properly claim a deduction for which they are eligible, the memo warned.

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