Late breaking IRS news

A new press release from the IRS:

Highlights: 1040A filers with Schedule 2 won’t be accepted until mid Feb. IRS has asked us to switch all 1040A with Schedule 2 filers over to Form 1040 and Form 2441.

Happy Holidays!

-Gabe

IR-2007-209, Dec. 27, 2007

WASHINGTON – The Internal Revenue Service announced today that 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.”

Following extensive work in recent weeks, the IRS expects to be able to
begin processing returns for the vast majority of taxpayers in
mid-January.  However, as many as 13.5 million taxpayers using five
forms related to the Alternative Minimum Tax (AMT) legislation will have
to wait to file tax returns until the IRS completes the reprogramming of
its systems for the new law.

The IRS has targeted Feb. 11, as the potential starting date for
taxpayers to begin submitting the five AMT-related returns affected by
the legislation. 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. As the IRS
has said previously, it will take approximately seven weeks after the
AMT patch was approved to update IRS processing systems completely.

Although as many as 13.5 million taxpayers will not be able to file
their returns until Feb. 11, the effect of the delay may be lessened by
the fact that under previous filing patterns only between 3 million to 4
million taxpayers file returns with the five affected forms during these
early weeks in the filing season.

“We regret the inconvenience the delay will mean for millions of early
tax filers, especially those expecting a refund,” said Linda Stiff,
Acting IRS Commissioner.  ”We’ve taken extraordinary steps to figure out
a way that we can start the filing season on time for most taxpayers,
including some using AMT-related forms.  Our goal has always been to
make sure we can accurately process tax returns while getting refunds to
taxpayers as quickly as possible.”

The February delay caused by the AMT patch will affect taxpayers using
these five forms:

*          Form 8863, Education Credits.

*          Form 5695, Residential Energy Credits.

*          Form 1040A’s Schedule 2, Child and Dependent Care Expenses
for Form 1040A Filers.

*          Form 8396, Mortgage Interest Credit.

*          Form 8859, District of Columbia First-Time Homebuyer Credit.

While these five forms require significant additional reprogramming due
to the AMT patch, the IRS has been able to reprogram its systems to
begin processing seven other AMT-related forms, including Form 6251,
Alternative Minimum Tax – Individuals.  Taxpayers filing these seven
forms should not experience delays in filing, and the IRS expects to
begin processing those returns starting on Jan. 14.

Electronic returns involving those five forms will not be accepted until
systems are updated in February; similarly, paper filers should wait to
file as well. All other e-file and paper returns will be accepted
starting in January. The IRS urges affected taxpayers to file
electronically in order to reduce wait times for their refunds. E-file
with direct deposit gets refunds in as little as 10 days, while paper
returns take four to six weeks.

“E-file is a great option for everyone, especially if they are affected
by the AMT,” said Richard Spires, IRS Deputy Commissioner for Operations
Support.  ”Filing electronically will get people their refunds faster,
and e-file greatly reduces the chances for making an error on the AMT or
other tax issues.”

In addition to filing electronically, the IRS urges taxpayers to take
simple steps to avoid problems:

*          Taxpayers filing electronically should make sure to update
their tax software in order to get the latest AMT updates.

*          Taxpayers with $54,000 or less in Adjusted Gross Income can
use Free File to electronically file their returns for free.  Free File
will only be available by visiting the official IRS web site at IRS.gov.
In all, 90 million taxpayers qualify for this free service.

*          Taxpayers who use tax software to print out paper copies of
tax forms should make sure they update their software before printing
out forms.  Taxpayers using paper forms can also visit IRS.gov to get
updated copies of AMT forms.

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.

The IRS also reminds taxpayers that printed tax packages, which will
begin arriving in the mail around New Year’s, went to the printer in
November before the AMT changes were enacted.  The packages reflect the
law in effect at the time of printing.  The tax packages include
cautionary language to taxpayers that late legislation was pending.

The IRS is also working closely with tax professionals and the tax
preparation software community to make sure they can help taxpayers with
all of the latest developments on the enactment of the AMT patch and
other tax changes.

“The IRS is going to continue to do everything it can to make this a
fully successful filing season for the nation’s taxpayers,” Stiff said.
“We will continue to work to keep taxpayers up to date and make this
situation as easy as possible for everyone.”

I never thought I’d say this but this is actually not the IRS’ fault.  In their defense they have been working hard  to predict what the government was going to do and have warned lawmakers for months of the repercussions of a late decision.

http://www.cnsnews.com/ViewPolitics.asp?Page=/Politics/archive/200712/POL20071221b.html

Thought’s anyone?

Congress passes HR 4351, the AMT Relief Act of 2007

On Wednesday, Congress passed HR 4351, the AMT Relief Act of 2007. This bill is meant to patch the AMT law for the 2007 tax year. Text of the new act can be found here.

Highlights of the bill:

1. Extention of AMT relief through 2007.
2. New AMT exemption amounts: $66,250 for joint filers, $44,350 for individual filers.
3. Decrease in earned income floor for child tax credit to $8500.

The bill’s passage came at the last day of the session, and is expected to delay the tax season. The IRS estimated that it could take seven weeks to update their central computers with the law changes.

The late season start will affect millions of taxpayers looking for early tax refunds. The IRS estimates that seven weeks will be required to make changes to their computer systems. This could delay the start of tax season by a month, according to estimates. The filing deadline has not been changed from April 15th, but the IRS has left that as an open possibility.

Tax professionals who cater to this group should be prepared for the confusion, as refunds will ultimately be delayed.

From the SF Chonicle:

The IRS has said it needs seven weeks from the patch’s enactment to adjust its computers to the change. Given the lag time, as many as 15.5 million tax refunds totaling $39 billion will be delayed next year, the IRS oversight board has estimated. In other words, 11 percent of 140 million filers will probably have to wait a little longer to get their money back from the IRS.

“The filing season usually starts the second week in January,” said William Fleming of PricewaterhouseCoopers, an accounting firm. But the delay in passing the patch, he said, “could cause a delay in early filing by as long as a month and a delay in getting refunds by the same period of time.”

“The IRS is doing all it can to have a fully successful filing season,” Treasury Secretary Henry Paulson said. “However, it is likely that there will be some delays, including delays of some refunds.”

Mddle and upper-middle income taxpayers will also be affected. AMT income exclusion limits are raised to $44,350 for individuals and to $66,250 for married couples.

The IRS has released the following revised federal tax forms affected by the law (and more will likely come):

1040 Schedule R, 1040A Schedule 2, 8396, 5695, 8839, 8859, 8880, and 2441

Orange Door, Inc. is conducting a detailed analysis of the effect of the new law, and will be providing support for these new forms with Orange Tax Suite Pro 2007.

If you have any questions regarding the new law, please feel free to contact us.

LJWorld.com / ’07 tax refunds may be delayed

It looks likely that the start of tax season will be delayed this year, along with the issuance of tax refunds.

LJWorld.com / ’07 tax refunds may be delayed