Tax legislation introduced by House Ways and Means Chairman Charles Rangel on Thursday provides a one-year extension of current Alternative Minimum Tax (AMT) relief for 2007, with a permanent repeal beyond that, but passage of the complete bill in either 2007 or 2008 is considered unlikely. Failure to enact a temporary fix will cause 21 million more taxpayers to "fall into" the AMT, Treasury Secretary Henry Paulson told Congress in a letter earlier in the week. Paulson urged Congress to pass an AMT patch as soon as possible to avoid subjecting these taxpayers to an additional tax of approximately $2,000.
Paulson also said that failure to enact the "patch" within the next few weeks could lead to a delay in processing refunds because it affects the processing of child tax credits and retirement credits, according to a report on Forbes.com.
Additional confusion could result from a delay because the IRS is scheduled to send its 1040 instruction forms to press on November 7 and will mail them out the first week in January, said IRS spokesman Terry Lemons, the Associated Press reports. The agency will begin processing 2007 tax returns on Jan. 14.
If lawmakers wait until December to make changes to the AMT, the IRS would not be able to start processing the 25 million to 50 million affected returns before mid- to late-March.
Rangel says his tax plan will result in tax relief for approximately 91 million families, and virtually every family with a net income of less than $500,000 will see a net tax reduction. The government expects to reduce its revenue by an estimated $840 billion over ten years if AMT is repealed, Forbes says.
Rangel proposes business tax changes, LIFO repeal
Text of the legislation