IRS: No AMT patch would cause chaotic filing season

By Bernie Becker - 11/13/12 08:38 PM ET

Millions of taxpayers would see their filing season upended unless Congress enacts a legislative fix to the Alternative Minimum Tax by the end of the year, the IRS told top tax-writers on Tuesday.

Steven Miller, the acting IRS commissioner, said that the tax-collecting agency would presume that Washington would come together to “patch” the AMT, as it has done in past years.

But if that doesn’t happen, Miller said that an extra 28 million households would get hit with the AMT, an alternative system that is supposed to take aim at wealthy taxpayers legally avoiding taxes. The last legislative fix expired at the end of 2011, making the AMT one of the more immediate threats in the looming “fiscal cliff.”

More than 60 million taxpayers might not be able to file a return or receive a refund until March 2013 or beyond if the AMT isn’t patched, as the IRS would be forced to scramble to reprogram its processing systems.

“Tens of millions of these taxpayers would unexpectedly have to pay additional income tax for 2012, leaving them with a balance due return or a much smaller refund than expected,” Miller wrote. “For millions of other taxpayers, refunds would be delayed.”

Miller sent the letter to the chairman and ranking member at both House Ways and Means – Reps. Dave Camp (R-Mich.) and Sandy Levin (D-Mich.), respectively – and Senate Finance – Sens. Max Baucus (D-Mont.) and Orrin Hatch (R-Utah).

The IRS letter also underscores the real-world implications of the so-called fiscal cliff, which the White House and Congress are trying to confront this lame-duck session.

Unless Washington acts, hundreds of billions of dollars in tax increases will happen at the end of the year, including the expiration of all Bush-era tax rates. Both sides have said they want to avoid the fiscal cliff, but have also laid markers on what could be protracted upcoming negotiations.

President Obama, recently re-elected to a second term, has said that he will not allow the Bush-era rates for the highest earners to be extended again, after signing off on an extension two years ago. Congressional Republicans, meanwhile, have said they could be open to new revenues, but will not agree to a hike in tax rates.

The millions of taxpayers who would face the AMT if it wasn’t patched would pay an average of $3,700, according to the Tax Policy Center. The AMT disproportionately hits households in wealthier, high-tax states, like California, New Jersey and New York.

Both the Senate, led by Democrats, and the GOP House have passed bills that would patch the AMT this year. The Senate included a patch for 2012 in a bill that extended Bush-era rates only for family income up to $250,000, while the House measure that extended all rates included a two-year patch.