WASHINGTON Congress could delay billions of dollars in 2013 U.S. tax refunds, dealing a blow to the economy, if it waits too long after the November 6 elections to finalize tax law, a top tax oversight official said.
The political uncertainty about what Congress may do after the elections has tax officials foreseeing some potentially bad outcomes for the filing season next year that for most U.S. taxpayers runs from mid- to late January until April 15.
A delay in refunds is troubling, but if Congress misses the December 31 deadline to extend expired tax provisions, then the impact "would be rather catastrophic," Paul Cherecwich, chairman of the Oversight Board for the tax-collecting Internal Revenue Service, said in an interview on Friday.
Congress has in some years voted on tax legislation at the last minute, delaying the usual start to the tax-filing season.
Tax officials say the IRS needs six to eight weeks to incorporate tax-law changes in federal tax-return documents.
Even a short delay to the start of the 2013 tax season can hold up billions of dollars in tax refunds, according to the IRS Oversight Board, a nine-member panel appointed by the president with IRS supervision authority.
"The failure to get refunds back into the system has broad economic consequences," Cherecwich said.
The major worry beyond the refund delays is that members of Congress will not distinguish between the expired provisions, principally the alternative minimum tax fix, and the larger individual tax rate debate, Cherecwich said.
About 6.6 million tax filings were slowed in early 2011, the last time lawmakers scrambled to legislate tax laws after national elections. The IRS was four weeks late in getting the tax-filing season fully under way.
Tax filing season was delayed in 2008 because Congress waited until late December 2007 to pass tax legislation.
"A CURVE BALL"
The AMT, a levy intended to ensure high-income individuals pay some minimum taxes must be adjusted for inflation or it will bolster the tax burden of an additional 27 million people.
About 4 million taxpayers paid the AMT in 2010, the latest year with data available according to the IRS. A two-year "patch" to index the AMT to inflation through 2013 would cost $132.2 billion over 10 years.
"Congress could throw the IRS a curve ball" and miss the December 31 deadline to patch the AMT, said Kathy Pickering, executive director of the Tax Institute at tax preparation firm H&R Block Inc. People hit by the AMT would owe $3,000 to $5,000 in additional federal taxes, she said.
Two years ago, lawmakers were united in their worry about an AMT lapse. The top tax-writing lawmakers assured IRS Commissioner Doug Shulman they would approve an AMT patch.
The Senate Finance Committee in August passed a bill to patch AMT as well as renew some tax breaks for businesses and individuals. The House of Representatives has not moved on an AMT patch, but voted in March to eliminate the AMT.
Tax law uncertainty this year is exacerbated by the expiring tax cuts passed under President George W. Bush. Some analysts predict that even if lawmakers punt on the Bush-era cuts until early January, must-pass items include an AMT fix.
"No one is talking about letting the AMT patch expire," said Michael Mundaca, a former top tax official at the Treasury Department under President Barack Obama and now co-director of national tax services at Ernst & Young LLP.