Drake Software Examines Possibility of Filing Delays for Millions of Taxpayers

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How late enactment of tax extenders, included in “fiscal cliff” legislation (the American Taxpayer Relief Act of 2012), could impact the 2013 filing season.

James Stork, Senior Vice President of Drake Software

Because the IRS’s gamble on the AMT patch paid off, the majority of taxpayers should be able to start filing tax returns as expected, on January 22, 2013.

On New Year’s Day, with only 36 hours to spare before adjourning for good, our 112th Congress finally passed “fiscal cliff” legislation – the American Taxpayer Relief Act (ATRA) of 2012. As a professional income tax software provider, Drake Software has been anxiously awaiting this news.

“Most of the focus has been on the seemingly futile battle over 2013 tax rates and the sequester,” explained James Stork, senior vice president of Drake Software. “However, critical tax provisions that impact the filing of 2012 tax returns were held hostage in the process.”

With the passage of this bill, the Internal Revenue Service (IRS) can now execute its strategy for the 2013 filing season; the good news being that the tax return filing season should start on time.

“But, unfortunately,” said Stork, “because these retroactive provisions were not passed earlier in 2012, millions of taxpayers might be forced to wait until mid-February before filing their returns.”

IRS Anticipates AMT Patch

The Alternative Minimum Tax (AMT) was originally intended to ensure wealthier taxpayers couldn’t legally avoid paying income tax through various deductions and credits. Because AMT is not indexed for inflation, an annual patch has been necessary. The IRS started preparing for the 2013 filing season working under the assumption that Congress would enact an AMT patch.

“This was a relatively safe assumption,” Stork said, “because a patch simply protects millions of taxpayers that the AMT was not intended to reach in the first place.”

Acting IRS Commissioner Steven Miller wrote to Congressional leadership twice this past fall, on November 13 and December 19, detailing his concerns and estimating that failure to enact a patch could lead to filing delays for 80 to 100 million taxpayers, or more.

“As a tax software provider to thousands of tax professionals, representing millions of taxpayers, numbers that large certainly get our attention,” Stork said. “Many of our customers earn the majority of their revenue from February 1 to April 15, and a delay of this magnitude would significantly impact the timing of their primary revenue stream.”

Extenders Treated As Expired

“Another unknown,” Stork continued, “was whether or not the extender provisions would be enacted.”

The term “extenders” represents a number of temporary tax breaks that expire periodically, including popular individual tax deductions for sales tax, educator expenses, and tuition and fees paid for post-secondary education, along with numerous business tax credits and energy credits.

“Most felt certain that Congress would not let these tax breaks expire for good,” Stork said. “However, since technically the extender provisions had expired at the end of 2011, the IRS had to proceed with updating its forms, instructions, and processing systems without the extenders.”

Miller’s November 19 letter also addressed the potential for filing delays associated with this course of action, likening the situation to the 2011 filing season when delays affected approximately 9 million taxpayers because of late (mid-December 2010) extender legislation, including everyone itemizing their deductions on Schedule A.

“When delays impact only certain forms and schedules, it creates a lot of confusion for taxpayers, and a lot of extra work for tax preparers,” Stork explained.

When Can Taxpayers File Returns?

Because the IRS’s gamble on the AMT patch paid off, the majority of taxpayers should be able to start filing tax returns as expected, on January 22, 2013.

But as Stork pointed out: “It is still uncertain whether or not those who are eligible for any of the extended tax breaks, or anyone using Schedule A, can start filing their returns at the same time.”

The IRS must make changes to bring applicable forms, instructions, and processing systems up-to-date with these retroactive provisions included in the ATRA of 2012.

“Fortunately,” Stork said, “the IRS has planned for this possibility, and can make the necessary changes in a relatively efficient manner. But if Miller’s prediction of a repeat of the 2011 filing season is accurate, millions of taxpayers will be forced to wait until at least mid-February before they can file their returns, and it will be a delay that could have been avoided had Congress acted earlier in 2012 to extend these provisions.”

When asked how Drake Software is preparing for possible delays, Stork responded, “At this point, there is no official word from the IRS regarding any filing delays, but we will be ready no matter what happens. If there are delays for certain forms and schedules, we will program our software to allow tax preparers to enter and prepare all returns, while putting a ’hold‘ status on the ones that are delayed. When the IRS starts accepting those returns, we will remove the ’hold’ status and allow preparers to file them. In addition, we provide reporting tools that help our customers manage the process of sidelining delayed returns until they can be filed. Our goal is to ensure that our customers can easily navigate the filing season, despite any delays.”

About Drake Software and the Author:

For more than 30 years, Drake has provided tax preparers with fast, reliable software to prepare and file both federal and state tax returns. Today, over 34,000 tax professionals use Drake Software. Using product evaluations, feedback from customers, and state-of-the-art programming, Drake continues to achieve its goals of consumer satisfaction and product refinement. For more information, visit DrakeSoftware.com or call 800.890.9500.

James Stork is the senior vice president of Drake Software. He began his career with the company in 1996 and works under the direction of the President on strategic planning, company policy initiatives, and business relations.

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