SOURCE: 2nd Story Software, Inc.

November 28, 2007 11:26 ET

Alternative Minimum Tax Leaves Taxpayers' Returns in Limbo

Late Legislation Could Delay the Processing of Millions of Tax Returns; Minimize Risks by Using TaxACT®

CEDAR RAPIDS, IA--(Marketwire - November 28, 2007) - Most taxpayers who file their tax return early do so because they are eager to claim their anticipated refund. However, this tax season, as many as 50 million taxpayers who file their return early may be disappointed by how long it takes to get their expected refunds.

The cause of the probable hold up? Lawmakers' failure to approve a temporary patch to the Alternative Minimum Tax (AMT) -- a parallel income tax system, implemented in 1969, designed to prevent 155 wealthy Americans from aggressively using tax credits, deductions and legal tax shelters as tools to help them avoid having to pay federal income tax.

The AMT has become a topic of heated discussion among taxpayers and lawmakers alike because the AMT now reaches into the pockets of the middle-class. Regular income tax brackets are indexed for inflation, but AMT thresholds are not. Thus far, the full effects of the AMT have been deferred by Congress enacting a series of temporary patches -- boosting the amount of the AMT exemption. However, the last temporary fix expired at the end of 2006.

If Congress fails to ratify another provisional one-year increase within the next few weeks, the number of households paying the AMT will jump from approximately 4 million in 2006 to nearly 23 million for 2007. Another 27 million filers, who claim a variety of credits connected to the AMT, are also projected to feel the sting of increased taxes as a number of these credits (i.e. child and dependent care, education, residential energy and state/local taxes) have not been extended to 2007.

Although the House approved a temporary patch to the AMT in mid November for 2007(which also extends approximately a dozen popular tax deductions and credits), the Senate has yet to vote on the legislation; and, Presidential veto is expected due to other legislation contained in the bill.

When Congress reconvenes from Thanksgiving Break, lawmakers will only have a few days to pass a bill into law before adjourning for Winter Break. Assuming parties can come to terms and the passage of last minute legislation is made to happen, the news is both good and bad for taxpayers. The good news: it's expected the AMT exemption will receive a boost for 2007 as compared to the year prior. Similarly, several credits and deductions are also expected to be extended for the coming tax season. The bad news: there will likely be major delays in processing your refund due to the late changes.

The IRS, which was recently up against a hard deadline to have its forms sent to the printer by mid November, has decided that the IRS' forms shall be in accordance with the laws as they stand today -- assuming no patch for the AMT and that a number of deductions and credits have expired.

Late legislation means the IRS will need to roll out new forms and instructions as well as make programming changes to its computer systems that are used to process tax returns -- in all taking approximately 10 weeks after the bill is signed into law. That means, even if Congress passes a change to the bill, an estimated 50 million filers, who would have been affected by the AMT and other expiring credits and deductions (totaling $75 billion in tax refunds), will be faced with processing set backs. Worse yet? Millions of other filers who are not impacted by the AMT may also face delays due to the backlog in processing returns.

The best advice a taxpayer can follow this year: find out early if the AMT affects you and use e-file. For a number of years, the percentage of filers submitting their tax return electronically to the IRS has shown increases in the double digits largely because it's convenient, secure and reduces the opportunities for common filer mistakes. But those who e-file their tax return also receive "Proof of Filing" which is an acknowledgement issued to the filer reflecting when the IRS received and accepted the return. Conversely, if an error is detected, the IRS can communicate the problem fast -- even pinpointing the location of the error in the tax return.

"It appears early filers impacted by the AMT will likely incur some processing delays -- whether the filer submits a paper return or e-files. However, those who submit their IRS return electronically will still fair better because, as the IRS works to process backlogged returns, returns received electronically will be processed faster," says Stephanie Behrends, spokeswoman for 2nd Story Software, Inc. -- makers of the popular tax program TaxACT.

"While all TaxACT editions follow existing laws, it is common some federal forms are not ready when the filing season gets underway. Our staff is comprised of experienced CPAs, accountants and software developers who are accustomed to making online changes under difficult circumstances such as these."

There are 12 forms that will be affected by the AMT which will likely trigger processing delays for filers (one for the AMT and 11 credit forms). They include:

 Form 6251 - Alternative Minimum Tax
 Form 1040, Schedule R - Credit for the Elderly or Disabled
 Form 1040-A, Schedule 2 - Child and Dependent Care Credit
 Form 1116 - Foreign Tax Credit
 Form 2441 - Child and Dependent Care Credit
 Form 5695 - Residential Energy Credits
 Form 8396 - Mortgage Interest Credit
 Form 8839 - Qualified Adoption Expenses
 Form 8859 - District of Columbia First-Time Homebuyer Credit
 Form 8863 - Education Credits
 Form 8880 - Credit for Qualified Retirement Savings Contributions

As for the last form, Form 8801 - Credit for Prior Year Minimum Tax,
significant changes to a section of the form is also currently under
review.

To get a clear picture of the AMT impact on your return, visit TaxACT.com and start a new return today. TaxACT Preview has both versions of the AMT changes programmed. Simply enter your data using the Q&A and you can select to see your refund amount as the law stands today vs. if Congress passes a change. If there is a difference in the two methods of calculating AMT, chances are your refund will be delayed.

More information regarding TaxACT may be found by visiting www.TaxACT.com.

About TaxACT

As a trusted and secure source for tax preparation and electronic filing services for millions of taxpayers, TaxACT.com is the only Web-based tax planning and preparation solution to offer taxpayers a year-round solution.

TaxACT is the pioneer of totally free federal tax preparation software and online services. Dedicated to providing consumers with a complete Web-based tax resource for a decade, TaxACTOnline.com is the 2nd most visited online destination for tax preparation services.(1) Designed to make preparing taxes electronically possible for everyone for little to no-cost, TaxACT was the first to offer free federal electronic tax preparation, printing and electronic filing services directly to all American taxpayers.

About 2nd Story Software, Inc.

2nd Story Software, a privately held company founded in 1998, is critically acclaimed as being a leader in developing and marketing affordable tax preparation software and Web-based services directly to consumers. The comprehensive suite of TaxACT products continues to empower its users to devise well-informed tax strategies with ease, while looking out for the cost-conscious. More information regarding 2nd Story and the TaxACT product line may be found by visiting www.TaxACT.com.

(1) According to collective week end-reports released by Hitwise™ during the 2004, 2005, 2006 primary tax seasons, TaxACT Online ranked second in the percentage of traffic it received as compared to other monitored Web-based tax preparation services. More information regarding Hitwise may be viewed by visiting www.hitwise.com.

2nd Story Software, Inc., company and product logos, TaxACT and TaxACT Online, among others, are registered trademarks of 2nd Story Software. Other party trademarks or service marks are the property of their respective owners and should be treated as such.

As a practical note, taxpayers are encouraged to consult a legal or tax professional if in doubt. TaxACT provides general guidance and not legal or specific tax advice.

Contact Information

  • Contact Information
    Stephanie Behrends
    Public Relations Manager
    2nd Story Software, Inc.
    Phone: (319) 373-3600
    Email: Email Contact