The IRS and many tax professionals are expecting a challenging 2008 tax return filing season. The lateness of the AMT patch passed by Congress is likely to delay return processing and refunds, the IRS has warned. The IRS recently announced that the late enactment of the 2007 AMT patch will specifically delay the start of the upcoming filing season by about one month for some 13.5 million taxpayers filing five AMT-related forms.

AMT Patch
The AMT is, as many people know, just what its name says: an alternative tax. Congress created it nearly 40 years ago so that roughly 200 very wealthy individuals could not evade their federal taxes. Congress made one mistake. It forgot to index the AMT for inflation.  Over time, inflation has eroded the value of the dollar bringing more taxpayers within the reach of the AMT.

This is where the "patch" comes in. The patch does not fix the AMT, it merely prevents it from expanding. The patch gives taxpayers higher AMT exemption amounts. The patch also allows taxpayers to use most of the nonrefundable personal credits to offset their AMT liability. The patch will keep as many as 25 million Americans from paying AMT, according to the U.S. Treasury Department.

Congress passed the patch on December 19, 2007. That's good news. However, because it was so late in 2007, the IRS did not have enough time before the start of the 2008 filing season to reprogram its computers for the patch. When the 2006 patch expired, the IRS' computers defaulted to the old law, without the patch. The IRS predicts it will need seven to ten weeks to reprogram its systems for the patch. The IRS has promised to process returns accurately and to issue refunds as quickly as possible.

Planning For Delays
In the meantime, the filing season has started. The first spike of the filing season typically occurs in late February and early March. The IRS is advising practitioners not to stockpile returns and not to switch from electronic filing to paper filing. In a recent news release, the IRS said that it has been able to reprogram its systems to start processing most returns in mid-January. However, the IRS announced shortly after passage of the AMT legislation that it expects that some 13.5 million taxpayers using AMT-related forms will have to wait until approximately February 11, 2008 to file. In particular, the IRS announced that taxpayers filing any of the following forms (manually or electronically) must wait until February 11, 2008 to file:

Taxpayers filing these forms will have to delay filing in order to allow the IRS time to reprogram its computer system. Other AMT-related forms, such as Form 6251, Alternative Minimum Tax-Individuals, will be processed beginning on January 14, 2008.

The IRS Oversight Board has projected how long delays may be. If the IRS starts processing returns on January 28, 6.7 million returns will be delayed, including $17 billion in refunds. If the filing season starts on February 4, 15.5 million returns will be delayed, including $39 billion in refunds. If the filing season starts on February 18, 37.7 million returns will be delayed, including $87 billion in refunds.

Forms
The IRS is revising many of its forms for the AMT patch. Electronic forms can be revised simply but printed forms have already been sent to the printer. Among the forms that must be revised are Form 6251 - Alternative Minimum Tax; Form 1040, Schedule R - Credit for Elderly or Disabled; Form 1116 - Foreign Tax Credit; and Form 2441 - Child and Dependent Care Tax Credit. The IRS has indicated that it will not need to reprint the 2007 Forms 1040.

Bruner-Cox LLP is carefully monitoring developments.  The IRS is keeping practitioners up to date with its reprogramming activities. We will be sure to advise you of the latest developments so your refund is hopefully not delayed.

For more information please contact  your BC Engagement Executive or one of our tax partners at 330.497.2000.