Following is Sen. Grassley’s statement from this morning’s news conference with Rep. Jim McCrery on the Treasury secretary’s analysis of tax filing problems and refund delays to be caused by the delay in enacting Alternative Minimum Tax (AMT) relief this year.  Following that is the Grassley-McCrery inquiry to the Treasury secretary. Attached are the Treasury secretary’s response and two charts used at the news conference.

 

Statement of Sen. Chuck Grassley

News Conference on AMT-related Tax Problems

Oct. 23, 2007

We have received the response from the Secretary of the Treasury to our joint letter about the impact of the filing season if Congress doesn’t pass – and pass soon – an AMT patch. The Secretary makes it clear that we have to pass an AMT patch if we are not going to see 21 million additional taxpayers subject to the AMT. We cannot be hitting these families – many who make less than a $100,000 – with an average new tax increase of $2,000 per family. As you can see from this chart – nearly half of all taxpayers making less than $100,000 are hit by AMT. 

But passing the AMT patch is not enough. We need to do it quickly, we need to do it now – otherwise we are looking at a “filing fiasco” come April 15^th. If we don’t act by early November, the Treasury Department says 25 million taxpayers – not just families that are hit by the AMT – could face delays in processing of their returns and payment of their refunds. The Treasury Department says $75 billion in tax refunds could be delayed for many weeks – and this would include many low-income and middle-income families as well as those who receive the Earned Income Credit. That is unacceptable.

In addition, not only will refunds be delayed, failure to act will devastate taxpayer service at the IRS. There are a lot of struggling families out there that depend on their tax refund to make a critical payment; to buy a car to get to a new job; to pay off the bill collector; to help meet the costs of their children’s education and for savings. These families can’t afford – and they shouldn’t have to – wait weeks on end for the IRS to give them their tax refund. It’s their money, it’s their refund – they have a right to expect it be sent to them right away.

But that isn’t going to be the case unless the Democratic leadership pulls up its socks and makes passing the AMT patch and extenders a priority in the next couple of weeks. I am sorry that we have to resort to an AMT patch. In 2001 the Senate passed a six-year AMT patch and agreed in conference with the House to a four-year patch. More recently, I have sponsored legislation and have voted for complete repeal of the AMT. In addition, I have consistently pressed for longer AMT relief packages. We wouldn’t have to go through this song and dance now if we just repealed the AMT.         

My concerns about tax administration and the filing season are not new. I was beating this same drum last year calling to pass as soon as possible an extenders bill. Now it’s far worse. The failure to pass the AMT patch -- or not pass it in a timely manner -- will significantly affect millions more taxpayers than the extenders issue last year. The Democratic congressional leadership needs to step up to the plate – and do so now. They have the responsibility. The letter from Secretary Paulson makes it clear that further delays – delays past early November – will cause incredible problems for taxpayers. Delays of the AMT patch into December will cause a filing fiasco. The patch should be processed in regular order and NOT jammed into an appropriations bill or continuing resolution.

 

The Democratic leaders need to give the Finance Committee designated floor time to allow the Senate to consider and pass the AMT patch and an extenders bill by early November. Today’s letter from Treasury makes clear with these new facts that this hot potato has just gotten a lot hotter. Congress needs to take action now – otherwise one of the most frustrating days for Americans – April 15^th – is going to be a whole lot worse.

For Immediate Release

Tuesday, Oct. 16, 2007

Grassley, McCrery Seek Treasury Response on Taxpayer Impact of Delayed AMT Relief 

         WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance, and Rep. Jim McCrery, ranking member of the Committee on Ways and Means, today asked the Treasury secretary for a detailed analysis of the impact on taxpayers of the Democratic-led Congress’ failure to extend Alternative Minimum Tax (AMT) relief so far this year.

         Grassley and McCrery, the two senior-most Republicans on the House and Senate committees with jurisdiction over taxes, are concerned that the delay will cause hardship and confusion for millions of families that already are forced to perform AMT calculations for their households, a headache in itself. They also fear that the delay will cause overpayment of taxes, underpayment of taxes, filing errors, and wasted tax dollars on revised IRS forms and guidance.

         “At this time last year, Congress was stalled on extending some tax provisions, like the college tuition deduction and teachers’ deduction of classroom expenses,” Grassley said. “That caused problems for taxpayers. This time, many more taxpayers are involved. Last year’s problems will look puny in comparison. The Democratic leaders need to get off the dime and enact AMT relief sooner rather than later.” 

           McCrery said, “"I believe that the problems created by the AMT are so large that they must be addressed as a part of a comprehensive reform of our tax laws. It seems less and less likely that sort of comprehensive reform will happen this year. Given that, the responsible course of action is to extend the AMT ‘patch’ -- as Republicans have done for years -- so that 19 million taxpayers are protected from the increased bite of the AMT. Failing to ‘patch’ the AMT in a timely manner will have serious consequences. Lawmakers and taxpayers should be aware of them.”

         As chairman of the Committee on Finance from January 2001 to May 2001 and again from January 2003 through January 2007, Grassley shepherded through legislation to greatly limit the number of new taxpayers who fell into the AMT.

         The text of the Grassley-McCrery letter to Treasury Secretary Henry Paulson follows here.

 

October 16, 2007

 

The Honorable Henry M. Paulson, Jr.
Secretary of the Treasury

U.S.Department of the Treasury

1500 Pennsylvania Avenue, NW

Washington, DC 20220

 

Dear Mr. Secretary: 

We are writing to inquire about the ability of the Internal Revenue Service (IRS) to change its tax forms, instructions, and computer programming to accommodate legislation that may be enacted later this year that would affect individuals’ 2007 income tax liability.

         Specifically, we are concerned Congress may enact AMT relief so late in the year that it will raise substantial administrative challenges for the IRS. In 2006, an AMT “patch” was passed much earlier in the year that provided taxpayers with AMT relief and the IRS with sufficient time to update computer programs and tax forms.

         It is our understanding that forms and instructions are finalized by the end of October and sent to print in early November. We are concerned that even if this Congress extends relief, it could occur after the printing date. As such, the IRS may have to print and distribute supplementary instructions. This could lead to confusion and perhaps over $50 billion in additional taxes paid, but not owed, by a portion of the 23 million families that would be subject to the AMT if the patch is not extended.

         In connection with this situation, please provide answers to the following questions.

          
1.                 On what date will the forms, instructions, and publications be sent to the printers?

2.                 If AMT relief is not extended, millions of additional taxpayers may be subject to interest and penalties. Given how late we are in the year, would there be an opportunity for the IRS, through a public service campaign, to inform taxpayers that they should send in estimated payments to cover the tax increase and avoid penalties, and would there be value in such a campaign? What would be the estimated cost of such a campaign?

3.                 How many taxpayers may not be withholding enough to pay their taxes if AMT relief is not extended?

4.                 How many of these taxpayers do not have sufficient withholdings to meet safe harbor requirements and, as such, could potentially be subject to penalties?

5.                 If taxpayers do not have sufficient withholdings to meet safe harbor requirements, what interest and penalties could possibly be charged to them?

6.                 How much additional tax, on average, will be owed by taxpayers subject to the AMT if AMT relief is not extended?

7.                 How would the IRS inform taxpayers of a change in the calculation of AMT liability if an extension of the AMT patch is enacted after the tax forms have been printed?

8.                 What additional costs would the IRS incur to notify taxpayers of the change, including the printing of new forms?

9.                 What additional costs would the IRS incur to reprogram their computer systems? How long would that process take?

10.             How would continued delay (November 15, December 1, December 15, December 22?) in passing AMT relief impact the ability of the IRS to process returns filed during the season, especially during the early part of the filing season? If so, how many taxpayers could potentially be affected? How large of an interest free loan to the government, in terms of total dollars associated with these filers refunds, would this create?

11.             How would continued delay in passing AMT relief impact the ability of the IRS to program its Electronic Fraud Detection System for the 2008 filing season? Could the delay lead to more fraud going undetected? How would continued delay (November 15, December 1, December 15, December 22?) impact IRS efforts to address the tax gap and implement the Secretary’s proposals in this regard?

12.             If AMT relief is enacted late this year, and if taxpayers mistakenly pay too much tax because they did not incorporate information advising them of AMT relief, what mechanisms exist for the IRS to catch these mistakes and refund the overpayment?

13.             In what other ways could a delay in AMT relief affect taxpayers’ abilities to file their tax returns, receive their refunds, and comply with their obligations?

         We look forward to your answers to these questions within ten working days. Given the time sensitive nature of this issue to millions of families, we look forward to your quick and thorough response. 

                                                      Cordially yours,

  

Jim McCrery                                                 Charles Grassley

Ranking Member                                           Ranking Member

Ways and Means Committee                      Finance Committee

 

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