UPDATE: 1/3/08
Click here for continuous IRS updates and answers to your questions.
UPDATE: 12/29/07
The Internal Revenue Service
announced that the upcoming tax season is expected to start on time
for everyone except certain taxpayers potentially affected by late
enactment of the Alternative Minimum Tax “patch.”
IRS expects to begin
processing returns starting on Jan. 14 except those containing the
forms listed below.
The IRS has targeted Feb. 11, as the potential starting date for
taxpayers to begin submitting the five AMT-related returns affected
by the legislation. The February date allows the IRS enough time to
update and test its systems to accommodate the AMT changes without
major disruptions to other operations related to the tax season. As
the IRS has said previously, it will take approximately seven weeks
after the AMT patch was approved to update IRS processing systems
completely.
The February delay caused by
the AMT patch will affect taxpayers using these five forms:
-
Form 8863, Education
Credits
-
Form 5695, Residential
Energy Credits
-
Form 1040A’s Schedule 2,
Child and Dependent Care Expenses for Form 1040A Filers
-
Form 8396, Mortgage
Interest Credit
-
Form 8859, District of
Columbia First-Time Homebuyer Credit
UPDATE: 12/20/07
The Senate and
House of Representatives have passed the AMT patch for 2007. We
still have to wait on the President to sign the bill and IRS to get
the changes up and running. I can assure you that we will be ready
to go when they are. The original date they were going to be
accepting tax returns was January 11.
They have not given us the new date. I want to ask each of you to
help us spread the word that you can go our website to get the
latest update. We will post the date here as quickly as we receive
the information. Probably the most critical message to get
delivered at this time is to
plan to come on in as soon as you receive your tax information
so we can get your tax return filed. It is going to be a very
lengthy wait if everyone waits until the date of acceptance by IRS.
Thank you
very much for your questions and encouragement. But most of all,
thanks to all of you who contacted your Senators and
Representatives, and you need to do it again. Understand this is
only a “patch”. They have not passed a “fix”. We have received a
one-year postponement. If we don’t want to be sitting in this same
spot at the end of 2008, we need to have them revisit this issue
early in 2008.
UPDATE: 12/19/07
More than 20 million families will be
spared an extra $2,000 tax hit on average after Congress excluded
them from a higher alternative tax originally aimed at untaxed
multimillionaires. An eleventh-hour vote on Wednesday to put a
one-year freeze on growth of the alternative minimum tax shields
many middle- and upper-middle income taxpayers from first exposure
to the tax. In 2006 it affected 4 million.
"It is likely that there will be some
delays, including delays of some refunds," Treasury Secretary Henry
Paulson said. He pledged that the Treasury Department and the IRS
would strive to keep taxpayers informed.
It is important to note that delays
will be industry wide. Be very cautious of those who
claim they can bypass the delays and get your refund faster.
The bill, which President Bush plans
to sign into law, is H.R. 3996.
UPDATE: 12/13/07
Both the Senate and the House have
each passed their versions of an AMT patch. While the Senate version
only contains legislation to extend the increased exemption for AMT
and the allowance for nonrefundable personal credits, the House
version [H.R. 4351] contains more than $50 billion in revenue
increases. This fact makes the AMT patch's fate uncertain when the
Senate considers the proposal.
The White House is threatening to veto the bill.
With that said, it is
unlikely the IRS will begin
processing tax returns before mid-February. The latest news
is that the IRS stated that they are looking at a seven week time
frame to program their systems once legislation is passed. They have
not formally indicated that all tax returns will be delayed, however
it is likely that will happen.
UPDATE: 12/12/07
Although both
the U. S. House of Representatives and the United States Congress
have passed the AMT “patch” for 2007, the bills have yet to be
reconciled.
The
Senate-passed bill
would leave a trillion-dollar hole in the federal budget over 10
years. The bill would spare the middle-class households touched by
AMT an average of $2,000-per-family increase on 2007 income taxes
and would ensure that refunds of as much as $75 billion would be
distributed without delay.
The House-passed
bill
would be paid for mainly by forcing managers of private equity
“buyout” firms and hedge funds to pay ordinary income tax rates on
the millions of dollars they earn each year. Currently, much of
those earnings are counted as capital gains and taxed at 15 percent,
rather than at the 35 percent income tax rate paid by the nation’s
highest earners.
What this all
means:
The IRS is
anticipating the AMT “patch” for 2007 however they cannot change the
IRS programming for AMT until the act is passed and signed into law
by
President Bush.
After the law
passes, the IRS will require a minimum of seven (7) weeks to
reprogram their computers. The challenge is to modify a program
allowing some returns to be processed while restricting those
returns which would be affected by the AMT.
Two potential
options are:
1. Programming
in stacking order to process returns that are unaffected by the AMT
or
2. Not
processing until the reprogramming is complete.
While IRS is
uncertain of the date the legislation might pass as well as the
particulars of the legislation, they are certain that the
tax deadline of April 15
will not be extended.
Any potential
delay will affect paper filed returns as well as e-filed returns.
Monday,
12/10/2007
In
1969, a law was passed to ensure that wealthy individuals, who could
claim many itemized deductions and tax-sheltered transactions, paid
at least some minimum tax each year. It was called the Alternative
Minimum Tax (AMT). This tax was not indexed to inflation, meaning it
affected taxpayers whose income exceeded a certain amount each year,
and that amount did not ever change from one year to the next. Now
it is about to affect 23 million unsuspecting middle-class taxpayers
with higher taxes as a result. Another 25 million taxpayers will
face higher taxes because several credits, such as the child tax
credit and ten other such credits expire at the end of 2007.
You may be among
those affected.
For years Congress has been aware of this problem and has passed an
annual patch (or band-aid) in the law to extend the credits so that
unintended taxpayers would not be affected by AMT. The number of
potential taxpayers falling victim to AMT has grown so dramatically
that a more complex fix is required this year. Unfortunately,
Congress can’t agree on how to remedy this situation, so it appears
that it could be late this year or early in 2008 before this
happens. This will cause a delay in tax return processing. IRS says
it will take up to ten weeks to prepare its system for a fix, after
it is passed, making it potentially unable to accept individual
returns until mid-February or even early March 2008.
The daily news broadcasts have begun reporting the status so you may
be able to keep updated on the situation there. We know you have
questions and we will be happy to answer them as soon as we can.
First, is the question of IRS extending the tax-filing season. We
don’t know and neither do they at this time. Another popular
question is whom it affects. It is easier to say whom it does not
affect and that is single or married individuals with no children,
their only income from W-2 forms, makes less than $50,000 per year,
and qualifies for no credits. Here are some examples:
Scenario 1 – Single with 2 dependents, Head of Household, Wages of
$50,000, paid $6,000 in day care for the 2 children, has no
itemized deductions.
Result:
with AMT patch – Refund of $964, but without AMT patch – owes $225
Scenario 2 – Married with 4 dependents, Married
Filing Joint, Wages of $75,000, paid $6,000 in day care for 2
children, has itemized deductions of $26,000.
Result: with
AMT patch – Refund $6,189, but without AMT patch – Refund - $700
Scenario 3 – Single with 3 dependents, Head of
Household, Wages of $75,000, itemized deductions of $15,000.
Result: with AMT patch – Refund $550, but without AMT patch – Owes
$1,725
Scenario 4 – Single with 2 dependents, head of
Household, Wages of $38,000, paid $6,000 in day care for the 2
children, no itemized deductions.
Result: with and without AMT patch – Refund
$2,714
Even though Scenario 4’s refund is not changed by the AMT problem
that person’s refund will not be processed until Congress remedies
the situation and the IRS is ready to process tax returns, so the y
actually are affected.
I
encourage you to visit our “Links”. It will
take you to a page where you can find your Senators and
Representatives, and even the President of the United States along
with all of their contact information. It would be easy to blame
the current majority political party or the President for this
serious problem. In reality this has been ongoing since 1969 and has
been patched by every Congress and every President since the first
expiration of the bill. Now it has reached the end of the line and
must have a fix. The President and Congress that we have in office
at this time are going to have to reach an agreement and pass a
bill, regardless of their political affiliation. With your
encouragement I believe the y will do that. Invest a few minutes of
your time in contacting the m and ask the m to expedite this
process. They will be adjourning for the
Christmas
break in just over a week. They have a lot of work to do and we
need to encourage the m to finalize this before their break. I might
also add that the y will be the first to tell you that email chain
letters do not work. I suggest that you do not participate in the m,
but rather contact your representatives directly.
This news may come as a disappointment to you, especially if you are
expecting a refund, but please know that as your tax advisors we are
committed to staying on top of this issue and will continue to give
you honest information and keep your best interest in mind. My
suggestion is that you
schedule an
appointment with us as always, or just drop in if you don’t mind the
uncertainty of waiting, and let us prepare your return as if
everything is filing as normal. Then, once IRS is ready we will let
you know (by email and/or phone) and you can stop by and sign your
forms, pay at that time, and we will file the m electronically for
you. It is a priority to us that your return is ready to file as
soon as it becomes possible to do so, and we need to get the m
prepared as soon as you get all of your tax information in order to
do that. Please do not wait until it nears the date for IRS to
accept them before you come in as that will cause long delays for
you here in our office. Neither is filing them on paper the
solution. They have already announced that the y will not even
begin to process the paper returns until electronic filing is up and
going. Remember, the y process by computer so even if you mail the
m their computers won’t be ready either.
If
you have any questions regarding this or any tax issue, please
contact us. As always, it is our pleasure
to serve you.
Sincerely,
Beverly Wyatt and all the Staff at Alliance
Tax Service |
