Monday, October 22, 2012


Russ Fox recently discussed a real potential problem for tax preparers and taxpayers alike In the upcoming 2013 tax filing season in his TAXABLE TALK post “Why the 2013 Tax Season May Give Me Lots More Gray Hair”.

Here is what Russ had to say –

Today, President Obama reiterated that he won’t sign a bill to block the year-end tax hikes unless there are tax hikes on the wealthy. If President Obama wins reelection, he’ll end up having to negotiate with the Republican House (and possibly a Republican Senate in January).

But what happens if Mitt Romney wins? In today’s Gallup Poll, he’s up by 7 among likely voters so this definitely could happen. And what were to happen if the Republicans also win the Senate (or it ends in a 50-50 tie, to be decided by whichever party holds the Vice Presidency), also a definite possibility? Republicans would wait for President Obama to leave office and on January 21st legislation might pass extending many of the Bush tax cuts.

There’s a problem here, though: The IRS won’t be able to update their computer systems until after the legislation passes in late January. A few years ago, there was a tax season where we couldn’t file most returns until mid-February because Congress waited until mid-December to pass extender legislation. Yes, it could be mid-March before we’re able to file many tax returns. Imagining a compressed one-month “normal” tax filing season is not pleasant for a tax professional.”

As Russ, and other tax bloggers, has pointed out, it is a very real possibility that the idiots in Congress will do nothing to address the various “extenders” that expired on December 31, 2011, including, most importantly, the dreaded Alternative Minimum Tax (AMT) patch, until early 2013. 

And, as Russ has also pointed out, this means that the IRS will have to “go to press” with incorrect or incomplete information on 2012 forms, schedules and instructions, and that its computer systems for processing returns will include this incorrect or incomplete information.

The IRS will either have to correct its computer systems mid-season, seriously delaying the processing of 2012 income tax returns and the issuance of 2012 tax refunds and perhaps requiring the extending of the initial filing deadline from April 15 to perhaps May 15 - or require taxpayers to file original returns under the law that existed when they went to press and then file amended returns once the computers have been properly updated.

Either option will cause mass confusion among the taxpaying public and generate massive agita or tax preparers.  It will most certainly cost the IRS a fortune and increase the cost of preparing a 2012 tax return.

As I cannot submit my clients’ returns electronically, and do not usually begin preparing returns until February 1st, my practice will not be as affected as most (assuming that the extenders are passed in January).  It would not stop me from properly preparing the return under a normal tax-season schedule – but the processing of these returns and issuing of any refunds would certainly be delayed.

While I expect I could deal with it, I would not want to be forced to wait until March to begin to prepare returns and would not want the season extended a month.  I would probably prefer filing initial returns under old law and then preparing 1040Xs in April and May to correct them as needed.  Hey, this would certainly increase my income.
As for the issue of gray hair that Russ brings up - I have been gray for years, so at least that is not a concern for me.
One alternative for the idiots in Congress - address the "extenders" ASAP, so the IRS can properly go to press almost on time, and then wait until early 2013 to deal with the "Bush" and other tax breaks that expire 12/31/2012.  But then again - they are idiots!

What do you think? 

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