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AMT bill could cause tax refund delays

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Congress approved a bill yesterday that would repair, or "patch," the alternative minimum tax (AMT) and protect about 20 million households from a tax increase caused by the AMT. However, because of the legislation's late passage, it most likely will delay tax refunds in 2008 for 15 million tax filers.

"The filing season usually starts the second week in January," says William Fleming, director of personal financial services for PricewaterhouseCoopers, New York. He says the delay in passing the patch "could cause a delay in early filing by as long as a month and in getting refunds by the same period of time."

In a vote of 352 to 64, the House prevented middle- and upper-middle-income taxpayers from being affected by the AMT, which was created in 1969 to target only the wealthy and prevent them from using deductions, credits and other shelters to avoid paying taxes. However, its income thresholds did not increase with inflation, and it began to affect more middle-income people.

The IRS had warned lawmakers that delaying the bill would disrupt the filing of 2007 tax returns because the IRS needs seven weeks from the patch's enactment to adjust its computers to the change.

As a result, the IRS's oversight board has estimated as many as 15.5 million tax refunds totaling $39 billion will be delayed next year; that will affect 11 percent of 140 million filers.

Still, repairing the AMT means a tax increase will not be imposed on people who never should have been subjected to one.

"The alternative minimum tax was never meant to ensnare middle-class taxpayers," says Rep. Wally Herger (R-Calif.), a senior member of the tax-writing House Ways and Means Committee.

If the patch had not been approved, the AMT would have affected 81 percent of taxpayers with taxable incomes of $100,000 to $200,000, according to the Joint Committee on Taxation. Nearly 50 percent of taxpayers who earn $75,000 to $100,000 also would have been affected. But as a result of the bill, 10 percent of taxpayers who make $100,000 to $200,000 and fewer than 2 percent of taxpayers who make $75,000 to $100,000 will have to pay the AMT. Four million households—about the same number as in 2006—will pay the tax.

Next year, Congress must patch the AMT again or millions of families will pay more taxes. However, because of the patch, it will face a revenue loss of $65 billion, which reportedly will be difficult to raise.

But in the present, relief will be welcome for 2007 taxpayers.

"It is the end of the year," says House Ways and Means Committee Chairman Charles Rangel (D-N.Y.), "and we have an obligation to at least provide temporary relief to taxpayers for the 2007 tax year."


12/20/2007

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