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"Riley Factor"
This article was featured in the February 2008
issue of Business Matters, our monthly
print newsletter.
Congress Passes AMT
Fix, IRS Scrambles to Avoid Delays
Congress acted in its
final hours before the holiday recess for a one year
fix on the Alternative Minimum Tax (AMT). Without
that fix, those subject to the tax would have risen
from 4 million in 2006 to about 25 million in 2007,
with the average levy of $2,000 a taxpayer.
The AMT was created in
1969 to make sure that a small group of the very
rich did not totally avoid paying taxes. But the
tax, which applies more stringent rules for using
deductions in calculating tax obligations, was never
adjusted for inflation, and every year more middle-
and upper-middle-level income people are hit by it.
The main beneficiaries of the passed tax relief
would be people in the $75,000 to $200,000 income
level.
The last-minute nature
of the vote on the AMT fix resulted from a
fundamental difference between the House and Senate.
House Democrats had insisted that the $50 billion in
tax relief resulting from the one-year fix must be
paid for by an equivalent amount of revenue
elsewhere.
Senate Republicans,
however, blocked the Senate from taking up
legislation that includes a tax increase, and
President Bush threatened to veto any bill that
raised taxes.
Even with the passage,
the consequences of the congressional dispute could
be felt by millions.
The Internal Revenue
Service (IRS) has said that it will take seven weeks
from the time the bill is signed into law to
reprogram and test forms, going well past the
planned mid-January start of the 2008 filing season.
The IRS and the AMT
“patch”
On December 27, the IRS
announced 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." As many as 13.5
million taxpayers using certain forms will have to
wait to file.
The IRS has targeted
Feb. 1, 2008 as the potential starting date for
taxpayers to begin submitting the five AMT-related
returns affected by late action on the "patch."
According to a statement by the IRS, "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.”
The February delay
caused by the AMT patch will affect taxpayers using
these five forms:
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Form 8863,
Education Credits
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Form 5695,
Residential Energy Credits
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Form 1040A's
Schedule 2, Child and Dependent Care Expenses
for Form 1040A Filers
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Form 8396, Mortgage
Interest Credit
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Form 8859, District
of Columbia First-Time Homebuyer Credit
The IRS has created a
special section on IRS.gov to provide taxpayers with
additional information and copies of updated forms
affected by the AMT. In recent days, the IRS has
posted updated copies of all forms affected by the
late enactment of the AMT patch by Congress.
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