IRS Fears Tax Refund Delays

Posted by Terri Eyden on Aug 22 2012

By Ken Berry

Do you think this year's tax return season was a nightmare? Wait until next year!

The upcoming election and its potential fallout have IRS officials tossing and turning at night as they contemplate another year when expiring tax provisions will go down to the wire. At this point, it's anyone's guess what will happen, especially with a lame-duck Congress at the controls. In the past, Congress has approved extensions in the eleventh hour and even reinstated tax breaks retroactively in the following year. But either of these scenarios makes it virtually impossible for the IRS to gear up for 2012 tax filings in time.

 

The IRS says its needs at least six to eight weeks to incorporate changes in its forms and other documents. Any delay will have a domino effect. Because early birds can't file their tax returns as usual, the refunds owed to millions of taxpayers will be delayed. And, if tax filers can't get their hands on their refund money fast enough, the economy will likely suffer. 

 

The results can be "rather catastrophic," according to Paul Cherecwich, chairman of the IRS Oversight Board, a nine-member panel appointed by the president. The Oversight Board points out that even a brief delay to the 2013 tax filing season can gum up the works. Billions of dollars in tax refunds will have to be put on hold. "The failure to get refunds back into the system has broad economic consequences," says Cherecwich.

 

The AMT Patch

• A two-year "patch" to index the AMT to inflation through 2013 would cost $132.2 billion over ten years.
• People hit by the AMT would owe $3,000 to $5,000 in additional federal taxes.

 One particular sticky wicket involves the alternative minimum tax (AMT). Despite annual "patches" that have bumped up the AMT exemption amounts, this onerous "stealth tax" continues to ensnare millions of taxpayers each year. As things stand now, Congress hasn't patched the AMT for the 2012 tax year, so exemptions have technically reverted to 2001 levels. The smart money is betting that Congress will eventually get around to fixing the problem . . . but when?

 

When lawmakers were forced to start scrambling after the elections last year, it took the IRS an extra four weeks to kick off the tax filing season.  

This is your alert that the IRS is already bracing for a lengthy delay in 2013.