IRS: Fiscal Cliff Turmoil Could Hit 100 Million Taxpayers

Thursday, 20 Dec 2012 07:02 AM

 

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Tax authorities warned on Wednesday that as many as 100 million taxpayers — far more than previously estimated — could face refund delays if law makers' fiscal cliff negotiations fail to fix the e alternative minimum tax (AMT) before year-end.

The Internal Revenue Service said in a letter to lawmakers that it was raising its estimate on AMT impact from 60 million.

"It is becoming apparent that an even larger number of taxpayers — 80 to 100 million of the 150 million total returns expected to be filed — may be unable to file," IRS Acting Commissioner Steven Miller wrote.

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The AMT is a levy designed to ensure that high-income taxpayers pay a minimum tax. Democrats and Republican typically agree to adjust the tax for inflation to prevent unintended taxpayers from being hit by it.

This year, however, its fate is tied to heated negotiations — primarily between President Barack Obama and House Speaker John Boehner — over future taxes and federal spending as they try to avoid the automatic tax increases and spending cuts known as the fiscal cliff.

The AMT fix for calculating 2012 income tax has broad bipartisan support, but so far been drowned out by the larger federal budget questions.

Without action soon to fix the AMT, there could be "lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers," Miller said.

The IRS needs congressional authority to update tax-filing software and forms so that Americans can start their tax returns next year. Inaction by Congress on the AMT has left IRS unsure which taxpayers will need to pay the AMT tax.

An IRS spokesman declined to comment on the agency's AMT preparations to date.

"Failure to act on the fiscal cliff will throw the 2013 tax filing season into chaos," Representative Sander Levin, a Michigan Democrat, said in a statement.

About 4 million taxpayers pay the AMT now because Congress routinely "patches" it for inflation to keep it from reaching down into middle-income tax brackets.

Editor's Note: 5 Signs Stock Market Will Collapse in 2013

Without a patch for 2012, up to 33 million taxpayers will have to pay the AMT, according to IRS.

Obama's most recent offer to Republicans included a permanent AMT patch.

House Republicans plan to vote Thursday on a bill to address the fiscal cliff that also includes an AMT patch.

© 2014 Thomson/Reuters. All rights reserved.

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