Attorneys

By: LawInfo

Published: 05/2008

The National Taxpayer Advocate (NTA) of the IRS has labeled the Alternative Minimum Tax (AMT) “the poster child for tax-law complexity.”  Congress created the Taxpayer Advocate to make recommendations to Congress, and since 2001 the NTA has advocated for Congress to either completely repeal the AMT or index it with inflation.  Congress has yet to act on either recommendation, but instead, does just enough to fix it until the next year.

The AMT was enacted in 1969 to ensure that the top 1% of households paid income taxes because they were eligible for so many deductions their tax liability dropped to nearly nothing.  The NTA found that individual tax filers with incomes as low as $150,000 may now have to pay the AMT.   Far from targeting only the super rich this legislation has ripened into a permanent root affecting millions of upper-middle income tax payers.

Congress’s annual “just in time” fix of the AMT may cause more problems than the tax itself.  In 2006 Congress waited until December to extend several tax deductions.  The NTA found that delay caused 1.4 million fewer claims for those deductions than in previous years.  Why?  Because the IRS prints tax forms in November.    Many tax filers did not know about those deductions because they were not included on the original forms printed in November.

Again this year Congress “patched” the AMT in December 2007.  This late fix is now causing the IRS to reprint several forms related to the AMT:  education credits (Form 8863); residential energy credits (Form 5695); child and dependent care expenses (Schedule 2, Form 1040A); mortgage interest credit (Form 8396), and the D.C. first-time-home-buyer credit (Form 8859).  Because of this delay the IRS said that as many as 13.5 million taxpayers who use these forms will have to wait to file their returns until its computers can be reprogrammed, which is scheduled to be completed in early February.  Though many taxpayers wait until March or even into April to file, those who choose to file early may be unable to do so.

How can this continual mess be remedied?  Congress is a constitutionally created branch of government.  Meaning it cannot be abolished or its composition changed.   The tax code and the IRS are creatures of Congress which can be changed.  Congress acted to create a specialized office, the NTA, to help make changes.  As shown though, Congress seems to be incapable of acting on its own good ideas.

The NTA is required by law to annually report on the top twenty problems taxpayers encounter.  Maybe the 2008 report should anoint Congress as problem #1. Tax attorneys are benefiting from Congress’s indolence but no one else is.

For more information on alternative minimum tax, contact a tax litigation attorney