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AMT Would Hit 60m US Taxpayers Without Patch For 2012

by Mike Godfrey, Tax-News.com, Washington

19 November 2012


A letter from Steven Miller, the Acting Commissioner of the United States Internal Revenue Service (IRS) to the House Of Representatives Ways and Means Committee Ranking Member Sander Levin (D - Michigan) has disclosed that, if Congress fails to extend the traditional Alternative Minimum Tax (AMT) patch, approximately 60m taxpayers could be affected.

“Congress must act now to address our unfinished business and give certainty to middle-class families by extending this expiring relief,” said Levin. “There is no reason Congress does not act on a bipartisan basis as it has in the past to fix the AMT. The consequences of inaction would be enormous for millions of middle class taxpayers. Extending AMT relief will prevent a substantial and unexpected tax increase on millions of Americans.”

The 26% AMT, or 28% on higher incomes, applies to individual taxpayers with incomes above specific thresholds. For many years, Miller wrote, Congress has been enacting "patches" to index these income thresholds for inflation in order to prevent millions of taxpayers from being subject to the AMT. The last such patch expired on December 31, 2011.

More specifically, for tax year 2011, the AMT exemption amount (as indexed for inflation) was USD48,450 for individuals and USD74,450 for married taxpayers filing jointly. Because of these thresholds, only about 4m taxpayers paid AMT for tax year 2011. Under current law, however, the thresholds revert to much lower levels for 2012 - USD33,750 for individuals and USD45,000 for married taxpayers filing jointly. At these levels, approximately 33m taxpayers would pay AMT for tax year 2012 (with returns filed in the spring of 2013).

In addition, however, the AMT patch has historically been accompanied by a special tax credit ordering rule that applies to all taxpayers claiming certain tax credits - whether they owe AMT or not. Taken together, the changes to the AMT exemption amount and the special tax credit ordering rules could affect more than 60m - nearly half of all of those filing individual income tax returns.

Miller pointed out that, in the most recent years - 2007 and 2010 - when Congress allowed the AMT patch to lapse for more than 11 months, and then retroactively reinstated it, the IRS was provided with bipartisan, bicameral assurances that Congress was working to enact a patch. The IRS, in turn, made a risk-based decision to leave its systems programmed assuming that Congress would again enact extensions.

He disclosed that, consistent with that past practice, he has instructed IRS staff again this year to leave the IRS's core systems "as-is" with respect to the AMT, and hold off on the substantial design and engineering work that would be required in order to revert the core tax systems back to 1998 law (which will otherwise apply for 2012 in the absence of any action by Congress).

Therefore, if Congress enacts an AMT patch before the end of the 2012 calendar year, he confirmed that the IRS “would likely be able to open the 2013 tax filing season with minimal delays for most taxpayers.”

However, he stressed that, “if there is no AMT patch enacted by the end of the year, the IRS would be forced to operate the 2013 tax filing season based on the expiration of the AMT patch. There would be serious repercussions for taxpayers.”

In addition, in order to allow time for the IRS to make the programming changes necessary to conform its processing systems to reflect expiration of the AMT patch, the IRS would, at a minimum, need to instruct more than 60m taxpayers that they may not file their tax returns or receive a refund until the IRS completes the necessary systems changes.

“Because of the magnitude and complexity of the changes,” Miller concluded, “it is entirely possible that these taxpayers would not be able to file until late March 2013, if not even later. 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. For millions of other taxpayers, refunds would be delayed.”

TAGS: individuals | tax | law | tax credits | Internal Revenue Service (IRS) | tax authority | United States | individual income tax

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