Late AMT patch delays IRS tax processing

The Internal Revenue Service began mailing tax packages this week, but many taxpayers will have to delay filing their taxes until February to accommodate Congress’ late passage of a fix to prevent millions of people from being hit by the alternative minimum tax (AMT). Taxpayers affected by the exemptions and tax credits in the AMT patch will have to wait while the IRS reprograms its tax processing systems to accommodate the new law.

IRS has targeted Feb. 11 as the potential starting date for 13.5 million taxpayers who will use any of the five forms related to the AMT legislation to begin submitting their returns, said Acting IRS Commissioner Linda Stiff. The delay caused by the AMT patch will affect taxpayers using any of the forms for the education, residential energy, mortgage interest and District of Columbia first-time homebuyer credits, and the child and dependent care expenses for 1040A filers.

“The IRS will work to make this tax season as smooth as possible for taxpayers,” Stiff said in a statement Jan. 2. “We strongly encourage taxpayers to file electronically, particularly those affected by late tax law changes. Filing electronically makes things easier by reducing errors and speeding up refunds.”

This year, the individual income tax packages mailed to taxpayers do not include tax credit forms and some other forms because of the late tax law changes. These forms are available on the IRS Web site. Taxpayers who e-file should update their tax software to ensure that they are using the revised forms, Stiff said.

The IRS is mailing 16.5 million 1040 tax packages to taxpayers who filed paper tax returns in the past. The number of paper packages has dropped significantly, falling from 34 million packages four years ago, she said. The paper packages are becoming much less common as e-filing soars. About 57 percent of individual taxpayers file their returns electronically .

The February date gives the IRS enough time to update and test its systems to accommodate the AMT changes without major disruption to other operations related to the tax season. The effect of the delay may be lessened by the fact that, based on previous filing patterns, a relatively low number of taxpayers — 3 million to 4 million — file returns with the five affected forms during the early weeks of the filing season, Stiff said.

Electronic returns involving those five forms will not be accepted until systems are updated next month. Similarly, paper filers should wait to file. All other e-file and paper returns will be accepted starting this month.

The Treasury Department and the IRS also released final rules Jan. 3 that give taxpayers more protection and control over their personal financial information held by tax return preparers. The regulations update those governing disclosure and use of tax return information by preparers, including taxpayer consent to the disclosure or use of their tax return information. The revisions update disclosure and privacy laws related to preparers for the first time in 30 years to incorporate e-filing.

More than half of individual taxpayers use a tax preparer. Preparers will have until January 2009 to implement the new requirements.

The IRS provided guidance to tax return preparers on the format and content of consents to disclose or use tax return information for taxpayers filing a return in the individual 1040 series. It also details specific requirements for electronic signatures when a taxpayer executes an electronic consent for disclosure or use of the personal financial information. The new language also aims to prevent consent requests from being buried in fine print on paper or on the Web site by requiring a set text size.

Treasury and the IRS also are considering proposing rules that would restrict the marketing of refund anticipation loans and other products connected with the preparation of a tax return. There is a 90-day comment period.

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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