AMT: If Congress waits, refunds to be delayed

IRS says Congress needs to act fast on AMT measures or else tens of millions of taxpayers will face processing delays.

By Jeanne Sahadi, senior writer

NEW YORK ( -- If lawmakers want to protect tens of millions of taxpayers from the Alternative Minimum Tax, they'd best make it snappy.

If Congress does not act in the next two weeks or so, 25 million to 50 million taxpayers will see the processing of their returns and their refunds delayed, the IRS said Tuesday.

In a press briefing, IRS Acting Commissioner Linda E. Stiff said that it will take the IRS between 12 and 13 weeks to process any AMT-related tax law changes from the day the bill is signed into law.

Currently, the IRS is scheduled to send its 1040 instruction forms to press on Nov. 7 and will mail them out the first week in January, said IRS spokesman Terry Lemons. The agency will begin processing 2007 tax returns on Jan. 14.

If lawmakers wait until December to make changes to the AMT, the IRS would not be able to start processing the 25 million to 50 million affected returns before mid- to late-March.

December tax law changes are not unprecedented. That's how long Congress waited last year to extend certain tax breaks. But those tax-break extensions only affected the programming and printing of a few IRS forms and resulted in a roughly two-week delay for no more than 4 million returns, Stiff said.

By contrast, she said, "AMT is at the core of our processing system. We'll have to reprogram millions of lines of code and test it."

Typically, taxpayers who expect refunds tend to file earlier than others. For tax year 2006, 103 million filers out of 135 million got refunds averaging $2,259.

The AMT was originally intended for the wealthy few when it was created nearly 40 years ago. But because Congress never indexed for inflation the amount of income exempt from AMT and because it disallows a lot of popular tax breaks, tens of millions of middle-class taxpayers could get hit.

Since 2001, Congress has temporarily increased income exemption levels and allowed for some personal credits to be used. The last patch - for 2006 - put the exemption levels at $62,550 for joint filers and $42,250 for single filers. Without a patch, the 2007 exemption amounts will fall to $45,000 for joint filers and $33,750 for single filers.

If lawmakers do nothing, 25 million folks will get hit with the "wealth" tax for 2007 - about 21 million for the first time. The Treasury estimates that those taxpayers would pay, on average, an additional $2,000 in income tax as a result of the AMT.

If lawmakers do pass a patch but don't do so until November or December, those same 25 million would be subject to a delay in the processing of their returns.

An additional 25 million taxpayers could be affected by the delay, according to Treasury estimates, if they take any of 11 credits - including the child tax credit and the child and dependent care credit. That's because rules governing those credits are part of AMT law, Stiff said.

There has been considerable wrangling over the AMT in the past few weeks. Lawmakers are debating whether or not to waive pay-go rules to pay for a patch, which is estimated to cost over $50 billion for one year.

Senate Finance Committee Chairman Max Baucus (D-Montana) appears to be open to waiving pay-go rules and appears to have enough Democratic support for it, while Senate Budget Committee Chairman Kent Conrad (D-ND) is opposed, as is House Ways and Means Chairman Charles Rangel (D-NY), according to reports from the National Journal's "Congress Daily" publication.

Rangel is expected to introduce a $1 trillion tax overhaul bill this week that will include a plan to reform the AMT and also include a patch provision for 2007. Top of page