The acting commissioner of the Internal Revenue Service said Wednesday that if Congress fails to act this year to prevent the alternative minimum tax from expanding, as many as 100 million households - of the 150 million total taxpayers - will be unable to file their taxes on time as the I.R.S. scrambles to reprogram its computers. Some 30 million tax-filers will see an unexpected tax hit.
In a letter to the chairmen and ranking members of Congress's tax-writing committees, the acting commissioner, Steven T. Miller, indicated that Congress's inaction would lead to chaos.
The alternative minimum tax was enacted in 1969 to make sure that rich households could not avoid taxation through the creative use of deductions, credits and loopholes, but because Congress failed to say that the threshold where the tax kicked in would rise with inflation, its reach has ex panded into the middle class. Each year, Congress has enacted temporary legislation raising that threshold for a year to prevent the A.M.T. from socking middle-class families.
But lawmakers have failed to do so this year.
I.R.S. computers now assume such a patch will be passed, but if nothing is done before Jan. 1, the agency will face a Herculean task of reprogramming its system.
“I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March 2013, or even later,†Mr. Miller wrote. “This situation would create two significant problems: Lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers, who will be unaware that they are newly subject to AMT liability.â€
Mr. Miller had previously estimated that failure to act on the A.M.T. would keep 60 million taxpayers from filing their returns while I.R.S. computers were being reprogrammed.
“As we consider the impact of the curr ent policy uncertainty on the upcoming tax filing season, 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,†he wrote Wednesday.
Both President Obama and Speaker John A. Boehner of Ohio have proposed a permanent fix to the problem of “A.M.T. creep†in a “grand bargain†on deficit reduction, but the cost to the Treasury would be large. The speaker's “Plan B†tax legislation, scheduled for a vote Thursday, includes a permanent A.M.T. solution, and it is by far the most costly piece of the bill. Measured against doing nothing and allowing all expiring tax provisions to disappear, the House tax bill's A.M.T. fix would cost the Treasury $1.9 trillion over the next decade. In contrast, extending all the Bush-era income tax rates for incomes below $1 million would cost the Treasury $913 billion.
