AMT, the Gift You Don't Have to Wrap!

On the way into the office this morning, I thought on what I should write about today. Something about Christmas but what? Then it dawned on me, what I want for Christmas. What do I really want most?  An AMT patch. Too tax based for you? Nope! An AMT patch is a practical gift that will benefit not just me but millions of taxpayers, tax pros and the IRS.

The real problem is that this gift is that Santa can’t deliver it. An AMT patch has to come from Congress in the last few days of the year. Since the elections, we have been waiting for them to get together and extend the Bush tax cuts and patch AMT. Not tax reform but tax fix. But here it is, Christmas Eve, and still nothing. Extending the Bush tax cuts can be done next year without affecting taxpayers but the AMT patch can’t wait. The patch has already expired so for 2012 returns AMT returns to 2001 levels.

As I’ve (and every other tax writer and blogger has) mentioned before, AMT will raise taxes on taxpayers in the middle class. A quick estimate I did found that a couple with 2 children and $75,000 in income (nothing but their standard deduction and exemptions) will pay over $600 in AMT on their 2012 return. AMT could hit 28 million returns for taxpayers with income from $75,000 to $300,000. The average increase would be about $3700.

No AMT patch will also impact the IRS. They assumed that Congress would extend the patch, so the IRS computers were not re-programmed for the original AMT. With no patch, they will have to reprogram their computers for the lower exemptions. That includes changes in a variety of credits which will no longer be allowed to offset the tax. On December 19^th, Acting IRS Commission Steven Miller sent a letter to Congress reminding them of the problems no AMT patch will cause. He estimates that 80 to 100 million of the 150 million returns that will be filed will have to be checked for AMT. He states that this would cause a delay in all return filing until at least March 31, 2013. The IRS will have to re-program two sets of computers because they are still converting to Modernized e-File. While most returns will go MeF, the IRS needs to keep the Legacy system working as a backup. Remember last February and the backup the high volume of MeF returns caused? Can you imagine what could happen once filing is opened after an eleven week delay without well tested systems?

Stuck in the middle of this mess are the tax pros. We are the ones who will have to deal with clients who can’t file for refunds they need now.  We’ll have to explain why they’re refund is lower or gone due to AMT. And since we won’t be able to file returns, we won’t get paid. Tax Preparation is a seasonal business and for many of us, there is little cash left in January. Waiting until late March, could make for a long cold winter.

So Congress, how about it? Give us, taxpayers, tax pros and the IRS, the gift we really want this year; an AMT patch. You can do it. Pull it off the fiscal cliff bill and take care of this one little thing. You have plenty of time to argue about tax rates and budget cuts next year.

I’m not the only one asking Santa for an AMT patch.

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