AMT stalemate risks refund delay

NEW YORK (CNNMoney.com) -- If you're expecting a tax refund next year - or worse, if you're counting on it - you may have to wait.

That's because lawmakers still haven't passed a temporary AMT patch for tax year 2007, something they've been promising to do. If Congress does follow through, the IRS will need to reprogram its systems - a process that will take 7 weeks from the day the patch becomes law.

"If the IRS must postpone accepting returns in the early part of the filing season in 2008, it would delay the processing of returns and the issuance of the associated refunds," the IRS Oversight Board noted in a Nov. 26 report.

The tax filing season is currently scheduled to begin Jan. 14, 2008. Even if Congress were to pass a patch in the next week, the start date for tax season would push to Jan. 28.

A patch would prevent the AMT - a tax originally intended for the very wealthy - from hitting roughly 21 million new taxpayers this tax year. The average tax bill increase would be $2,000 unless a patch is passed, according to Treasury Department estimates.

Electronic filers who want their refund direct-deposited into their bank account typically receive their money between 10 days and 2 weeks after filing. It takes 3 weeks if they want a check mailed to them.

Paper filers typically get their refunds within 35 days if they choose direct deposit, or about a week longer if they opt for a check.

Whether those intervals would grow and by how much, the IRS can't say yet. But the later the IRS starts processing returns, the more likely it is that there will be a backlog of returns to get through.

If a patch isn't signed into law until, say, Christmas Eve, the filing season could be pushed to Feb. 4. That would delay the processing of 15.5 million returns from which the agency is likely to issue 13.3 million refunds totaling more than $39 billion, according to the IRS Oversight Board.

If lawmakers wait until early 2008 to pass a patch, the numbers grow substantially from there.

If they wait until the week of Jan. 7, the filing season won't get started until the week of Feb. 18. That would affect 38 million returns from which 32 million refunds worth $87 billion would be issued.

The delay on the Hill is about - what else? - money. There is still strong disagreement over whether to pay for the estimated cost of the patch - roughly $50 billion - by raising tax revenue elsewhere through so-called offsets.

As things stand now, the House has passed an AMT patch bill with offsets, but the Senate has yet to pass its own bill. While there's still a chance a patch will pass this year, the debate may be pushed into early 2008.

Senate Majority Leader Harry Reid (D-Nev.) said Monday that the Senate would address the AMT patch issue "as soon as we can," according to "Tax Notes," a publication of Tax Analysts. Senator Charles Grassley (R-Iowa), meanwhile, indicated there may not be enough time this year for an AMT bill given the disagreement about the offsets.

Failure to reach a compromise by now also has introduced a lot of uncertainty into the planning of taxpayers who still aren't sure whether they'll be on the hook to pay the AMT or not.