Perhaps two-thirds of tax returns could be delayed next year unless Washington reaches a “fiscal cliff” deal, the IRS told congressional tax writers on Wednesday.
That’s because, Miller said, the tax-collecting agency has assumed that Congress would act, and would need to make “significant programming changes” if it does not.
“Given the magnitude and complexity of the changes needed, I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later,” Miller wrote to the top Republican and Democrat on both the Senate Finance and House Ways and Means committees.
Miller had previously estimated that 60 million returns — out of around 150 million overall — would be delayed if lawmakers didn’t enact an AMT patch.
The IRS letter comes around two weeks before the U.S. economy is to absorb more than $500 billion in scheduled tax increases and spending cuts.
Negotiations between President Obama and Speaker John Boehner (R-Ohio) have broken down in recent days, and Boehner is rushing to line up votes for a “Plan B” that would lock in tax rates for income up to $1 million.
Both “Plan B” and proposals from Democrats would keep the AMT, an alternative system meant to ensure that the wealthy can’t avoid taxes.
Congress did not index the exemption for AMT for inflation when it was enacted, forcing lawmakers to routinely pass a “patch.” The last patch expired at the end of 2011 — meaning that if Washington does not reach a deal, taxpayers would have to deal with the fallout when they turn in their 2012 returns next year.
Without a patch, around 30 million households will be forced to pay the AMT for 2012, with many of them unaware that they faced additional tax liability.
Miller said in his letter that even taxpayers who would not have AMT liability without a patch would be forced to file late, because there would be certain forms the agency wouldn’t accept from anyone.
“Allowing only some taxpayers to file as we reprogram could substantially increase the risk of fraud and error in initial filings as well as create the potential for a large number of amended returns,” the acting IRS commissioner added.
Miller also said that it would also cause problems if Congress failed to patch the AMT this year, and then came back to try again next year.
“If Congress were to act at some point next year to enact a new AMT patch, the time and substantial expense necessary for the IRS to reprogram its systems to reflect expiration of the patch would ultimately be wasted,” Miller wrote.