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Late fixes on tax forms to delay refunds to millions, IRS says

December 28, 2007|Kathy M. Kristof | Times Staff Writer

Tax refunds will be delayed for millions of middle-income taxpayers next year because of late action by Congress to limit the widening reach of the so-called alternative minimum tax, the Internal Revenue Service said Thursday.

Until lawmakers passed a one-year "patch" last week, the alternative tax, once aimed at wealthy filers, had threatened to ensnare about 23 million Americans for the first time -- including about half of the taxpayers earning $75,000 to $100,000 a year.

Because the patch was adopted so late, the IRS has been scrambling to revise a dozen affected forms and to revamp its computer systems to deal with the changes. The agency has done this work on seven of the forms but says it will take until mid-February to finish the remaining five.

The 13.5 million taxpayers who need to file one or more of those five forms, including parents who claim write-offs for paying college tuition or day-care expenses, won't be able to file their returns until Feb. 11. Because it typically takes 10 days to six weeks to get a refund, that means the affected taxpayers probably won't be able to get their refunds until late February or March.

"People are going to be frustrated and angry," said Elliott Kajan, a Beverly Hills tax attorney. "If they are, they should direct their anger at Congress, not the IRS.

"Congress knew this was going to happen, and instead of fixing it, they put a Band-Aid on it," he added. "That Band-Aid is going to wear away again next year, which could leave us in the same boat a year from now. They are always pushing the problem off to next year, and that becomes incredibly problematic."

The Treasury Department and tax watchdog groups had warned Congress for months about the risk of delaying tax legislation. At one point, the IRS Oversight Board predicted that the filing season might be postponed for everyone.

"We regret the inconvenience the delay will mean for millions of early tax filers, especially those expecting a refund," said Linda Stiff, acting IRS commissioner. "We will continue to work to keep taxpayers up to date and make this situation as easy as possible for everyone."

How might this glitch affect you and what should you do about it? Here are some questions and answers:

Am I affected by this delay?

You're affected if you intended to file your return before Feb. 11 and claim one of the following credits, for which the IRS forms won't be updated until then:

* The education tax credit (which is claimed on IRS Form 8863).

* A credit for dependent-care expenses (Schedule 2 on Form 1040A).

* A credit for buying energy-efficient products (Form 5695).

* A mortgage interest credit available to people receiving certain types of housing assistance (Form 8396).

* A credit available to first-time home buyers in the District of Columbia (Form 8859).

The IRS estimates that 3 million to 4 million people will face a delay in filing and getting a refund, if they're eligible for one.

What happens if I file before Feb. 11?

If your return includes any of the five forms that have not yet been fixed, the IRS will reject the return and ask you to refile Feb. 11 or later.

What if I need my refund before then?

Those who claim the dependent-care credit can get around the delay by filing Form 1040, which has already been fixed, instead of the shorter Form 1040A, said Tim Gokey, president of H&R Block retail tax services.

If you are affected because of the education credit or other tax breaks, you can file your return without claiming the problematic credit and get a partial refund right away, Gokey suggested, and then file an amended return after the IRS has completed its patches. H&R Block will do this for its customers without an extra charge, he said.

One other tip: File electronically when you do file because that will expedite your refund.

Do I have to worry about the tax software I bought in December? Does it include these changes?

It probably doesn't, but your software company will provide updates. Make sure you download them before you file.

What if I file on paper?

The tax packages mailed by the IRS this month to about 16.5 million taxpayers don't have the updated forms. If you are claiming one of the affected credits, you'll need to get an updated form on the IRS website at or from an IRS office, a post office, a library or a tax professional.

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