Taxable Talk

The IRS announced today that most taxpayers will be able to file their tax returns normally. However, about 3 to 4 million taxpayers who use just a few forms will need to wait until February 11th. (While about 13.5 million taxpayers use these forms, most do not file early.)

Here are the forms that will cause delays:

• Form 8863, Education Credits;
  
• Form 5695, Residential Energy Credits;
  
• Form 1040A Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers; and
  
• Form 8859, District of Columbia First-Time Homebuyer Credit.

Remember, the forms you get in the mail will be incorrect. Specifically, the exemption amounts on Form 6251 (Alternative Minimum Tax) are wrong. Other forms and instructions that reference these amounts will also be incorrect.

The IRS stated in today's press release that they will need seven weeks to update their computer system for those specific forms, but that individuals who don't use those forms should be able to file normally.

Congratulations to the IRS in working expediently to fix the mess that Congress created. As to Congress, can you do your 2008 AMT patch before Election Day next year?

In the no surprise department, the House passed the AMT patch bill that did not contain any offsets. It now goes to President Bush who will likely sign it tomorrow or Friday.

The IRS previously said that it would take ten weeks for their computers to be reprogrammed with the new AMT exemption amounts ($66,250 for joint filers and $44,350 for single filers). Assuming that's the case, the IRS computers will be ready to process returns on February 29, 2008.

If your refund gets delayed, you will know who to blame: Congress—specifically the Democratic leaders in the House and the Senate. They waited to bring this measure up until late November knowing full well what the impact would be.

Finally, Joe Kristan ended his post on this with a wonderful thought: "As the patch only covers 2007, it kicks the problem into 2008 - an election year. More fun awaits." Thanks, Joe. It's the Holiday Season, a time for good cheer, not reasons for the rest of my hair turn to gray.

TaxProf Blog linkfest on the AMT patch passage
Roth Tax Update post

News reports state that the House will consider an AMT patch bill that has already passed the Senate. The Senate version of the AMT bill does not contain any tax offsets (or "paygo") provisions. Earlier, the House had passed an AMT patch that contained such offsets.

Last night the Senate again considered the House bill and it again failed (48 - 46, with 60 votes needed). All but one of the Republicans present voted against the bill while all Democrats present voted for the measure.

Thus, the House was left with no option but to consider the Senate version of the AMT patch, or the Democrats would end up being blamed for a tax increase on the middle class. Unfortunately, due to the lateness of the bill, the IRS forms that millions of taxpayers will receive will have incorrect information, and it's probable that the IRS will be unable to process individuals' tax returns until sometime in March.

When NBC's Saturday Night Live looks saner than California's legislature, there's a problem.

Today, California's legislature will look at a new health insurance program, estimated to cost $14 billion. Interestingly enough, California's budget deficit for this fiscal year is now estimated at $14 billion.

Late today the Senate passed a one-year Alternative Minimum Tax (AMT) patch that did not have any corresponding tax increases. The measure will now go to the House where it faces an uncertain future.

The House had passed a two-year patch that contained corresponding tax increases. As I mentioned previously, there's no chance that an AMT patch which contains tax increases can pass the Senate nor would it be signed by President Bush. However, that doesn't mean that House Democrats have figured that out.

Other tax measures which are scheduled to expire were removed from the AMT legislation. A separate bill on those "extenders" will soon be introduced. However, because it will contain corresponding tax increases it, too, faces an uncertain future.

Meanwhile, tax forms (which will almost certainly be wrong) are being printed at the Government Printing Office, and I and other tax professionals will have to explain to clients why the forms are wrong. As I said before, I expect that by April 15, 2008 all of my hair will be gray.

What does the IRS have to do with health care? Very little today. However, if one presidential candidate gets his wish, the IRS will be intimately involved in health care.

Former Senator John Edwards (D-NC) proposes that under his version of socialized medicine, Americans would have to submit proof of health insurance with their annual tax filings. If you didn't have insurance, the IRS would notify a newly created federal/regional bureaucracy; that individual would be required to obtain insurance (but would get a tax credit to help with his payments).

Now, I've probably got some of the details garbled, but I'm not apologizing for that. The IRS has enough difficulties administering taxes. Getting them involved in health care is a prescription for a headache that we'd all be sharing.