Tax News

CCH (cch.taxgroup.com) reports:

Acting IRS Commissioner Linda Stiff hosted a press briefing on October 23 discussing the potential tax administration issues and taxpayer refund delays that would result from Congress's late passage of an alternative minimum tax (AMT) legislative patch. Stiff confirmed much of the report given by Treasury Secretary Henry M. Paulson, Jr. to House Ways and Means Committee ranking member Jim McCrery, R-La., Rep. Thomas Reynolds, R-N.Y., and Senate Finance Committee ranking member Charles E. Grassley, R-Iowa, regarding the problems that the IRS will face without immediate legislation.
Delayed Legislation, Delayed Refunds
According to Stiff, failure to enact a legislative patch to prevent the spread of the AMT by early November would negatively affect up to 50 million taxpayers nationwide. She explained that it would wreak great havoc both on the Service's ability to process returns in a timely manner and to issue timely refunds. Stiff explained that "this delay will affect lower-income, middle-income and upper-income taxpayers."
Stiff stated that these taxpayers fall into two different groups. An estimated 25 million taxpayers will become subject to the AMT without a legislative patch and will be adversely affected by late AMT legislation. "Last year there were 4 million taxpayers subject to the AMT," Stiff stated. "If we don't have a patch, 25 million will be subject. If we get a patch in late November or December, we will have to delay the refunds for the 25 million while we catch up."
The affected taxpayers are likely to see delays in refunds because they claim credits or deductions that are calculated differently under the AMT. Stiff explained that "a wide group of taxpayers, including taxpayers who claim the child tax credit, the child dependent care credit and education credits, are impacted by the AMT law. The AMT affects not only taxpayers who are subject to AMT, but it affects taxpayers who claim those credits, the order in which they claim them and the amounts to which they will be entitled."
Technical Problem
Stiff reported that the resulting delay from a late AMT legislative patch is largely a technological issue. With the expiration of the 2006 AMT patch, the IRS's computers defaulted to the current state of the law. Reprogramming the IRS computer systems to deal with new AMT legislation will require 12-to-13 weeks from the time the bill is signed into law. The project would require changing millions of lines of code in the Service's computer systems.
No Cut-Off Date Offered
However, Stiff declined to give a definitive cut-off date for passing of an AMT patch that would prevent these problems. "Given that we would need 12 weeks in order to accomplish the process and given that the filing season will start on January 14, if we want to start timely for all taxpayers, I think you can do that math," Stiff remarked.
Congressional Response
GOP members in both chambers see the AMT pay-as-you-go (PAYGO) conundrum as an opportunity to leverage further extension of the more popular provisions included in the 2001 and 2003 tax bills. At an October 23 press conference discussing the need to immediately pass a one-year patch for the AMT Grassley told reporters that a "vast majority "of Republicans were willing to help the Democrats pass a one-year patch of the AMT without revenue offsets, under one condition. "We would like to see some tax policy enacted, especially that which aids the economy," said Grassley. According to one GOP senator, his party is looking at an extension of the rate cuts for capital gains, dividends and the estate tax as well. Republican members are also reportedly anxious about approving a one-year AMT patch with offsets as they claim it is tantamount to a tax increase. Moreover, Grassley said that AMT relief would eat up approximately one-fourth of the available offsets which he said are desperately needed to help pay for other entitlement programs, particularly Medicare.
Grassley emphasized that time is of the essence. "The letter from Secretary Paulson makes it clear that further delays --delays past November --will cause incredible problems for taxpayers," he said. "The secretary makes it clear that we have to pass an AMT patch if we are not going to see 21 million additional taxpayers subject to the AMT."
McCrery, who, along with Grassley, had contacted Paulson on the matter, stressed the ripple effect that delays in approving an AMT patch could have on middle-income households. Referring to the Paulson letter, McCrery said: "They found that 25 million taxpayers --in addition to the 25 million that are subject to the AMT without a patch --could have their tax refunds delayed. In fact, Treasury estimates that 50 million taxpayers could have 75 billion worth of refunds delayed for up to 10 weeks."
House Ways and Means Committee Chairman Charles B. Rangel, D-N.Y., told reporters on October 17 to expect the introduction of two separate tax bills during the week of October 22 (TAXDAY, 2007/10/18, C.1). One measure, slated for introduction on October 25, which he called a "stop-gap" bill, would cost about $80 billion and extend a group of popular business and individual tax breaks known as the tax extenders. It would also provide a one-year patch to prevent the AMT from affecting about 23 million American families in 2008. The second piece of legislation Rangel promised, would be the "mother of all reform" bills that would include provisions to totally eliminate the AMT at a cost of roughly $800 billion. This second tax bill, which Rangel expects to see on the House floor sometime in 2008, would also cut taxes for about 90 million Americans, lower corporate tax rates and close many tax loopholes that businesses currently enjoy.
White House Response
The Bush administration "could support" individual components of the Rangel plan if they are ""revenue-neutral" and in the context of tax reform, according to White House Principal Deputy Press Secretary Tony Fratto on October 23.
By Jeff Carlson, Torie Cole and Paula Cruickshank, CCH News Staff
SFC Release: Grassley Statement at News Conference on AMT-Related Tax Problems
Treasury Letter to Grassley on AMT
Treasury Letter to McCrery on AMT
Treasury Letter to Reynolds on AMT
JCT Graphic of Taxpayers Affected by the AMT Under Present Law (2007)
JCT Graphic of Percent of Taxpayers Affected by AMT Under Present Law (2007)