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2008 Filing Fiasco Looms In US As Congress Fails To Agree AMT Patch

by Leroy Baker,, New York

28 November 2007

The Oversight Board of the US Internal Revenue Service has voiced “grave concerns" about the very real possibility of a chaotic 2008 filing season if legislation to reduce the impact of the Alternative Minimum Tax (AMT) is not enacted soon.

In a letter to the senior tax writers on the Senate Finance Committee, the Oversight Board warned that the longer AMT legislation is delayed, the more the IRS’s ability to process returns and issue refunds in a timely manner will be threatened, while a significant burden will be heaped on the shoulders of ordinary taxpayers.

The Board has reviewed the IRS’s readiness for the 2008 tax filing season, which should begin on January 14, 2008. The IRS is prepared to begin this filing season in accordance with present tax law, but should Congress change the law on tax provisions that deal with the AMT, the IRS must reprogram and thoroughly test its systems before it can process electronic and paper tax returns, a process that is expected to take seven weeks.

Congress must amend AMT legislation in time for the 2008 filing system in order to prevent an estimated 21 million additional taxpayers being dragged into the parallel tax system, which was originally designed to stop the wealthiest few Americans from reducing their tax liability to nothing through the use of various deductions and other methods. However, the legislation that would lead to the enacting of a one year 'patch' is currently bogged down in Congress, as lawmakers dispute proposed measures to offset the cost of AMT relief.

In essence, Congressional Republicans want a clean bill that would simply extend AMT relief for an additional year and certain other expiring tax relief provisions for another two years. Senate Minority Leader, Mitch McConnell has insisted that any further "pay-fors" and add-ons proposed by Democrats must get 60 Senate votes to pass, and lawmakers were unable to agree a compromise before last week's Thanksgiving recess.

The Oversight Board estimates that a late filing season start date of January 28, 2008 would result in $17 billion in delayed refunds, while a February 18, 2008, filing season start date would result in $87 billion of delayed refunds. These delays would hit taxpayers filing paper returns the hardest, and the Board has warned that the problem will be compounded if significant numbers of taxpayers who normally file electronically switch to paper filing.

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