The Taxpayer Relief Act of 1997 included a provision whereby businesses with average gross receipts of no greater than $5 million for three consecutive taxable years are no longer liable for Alternative Minimum Tax. Unfortunately, it appears that many qualifying businesses haven't yet gotten the message.
In a study by the Treasury Inspector General for Tax Administration (TIGTA), it was found that some 2,000 small businesses overpaid an average of $11,638 in alternative minimum taxes for the tax year 1998, the first year the new law was in place. It was determined that the businesses didn't know to request an exemption from the tax.
"These overpayments are especially troubling becaue there is no automatic system for refunding them or even alerting the taxpayers who have mistakenly overpaid," said Senate Small Business committee Chairman Christopher Bond (R-Mo.).
The taxpayers who overpaid their taxes will receive a refund only if they realize their mistake and file an amended return. Taxpayers who paid the Alternative Minimum Tax by mistake in 1998 have until 2002 (three years after the 1999 filing date of their original tax return) to amend the return and request a refund for overpaid taxes.
The total overpayment by these small businesses is estimated to be over $25 million for 1998. Estimates for 1999 have not yet been determined.
Senator Bond has requested the IRS to develop a system under which "taxpayers who make errors in their favor, such as the AMT overpayment highlighted by [the TIGTA rpoert] will automatically receive a refund once the IRS identifies the mistake." He has asked the IRS to respond by January 5. The IRS had been asked to provide a response to the original report by October 2, but so far no response has been issued.
Accountants who perform services for small businesses who might qualify for this tax relief should make an effort to educate their clients and, if applicable, help the clients file for refunds of tax overpayments.