How the IRS is Responding to Tax Extenders Bill

Tuesday December 12, 2006

Congress extended several tax deductions that expired at the end of 2005 in the Tax Relief and Health Care Act of 2006. The Internal Revenue Service has a plan in place to allow taxpayers to claim every tax break they are entitled to. Here's what we know so far:

The 2006 tax forms have been finalized and send to the printers.
The tax forms will not be revised.
The IRS will be issuing instructions to let taxpayers know how to claim these deductions.

The IRS plans were outlined in a letter sent to Senator Max Baucus.

Quoting from a letter to Senator Max Baucus found on the Senate Finance Committee Web site, IRS Commissioner Mark Everson wrote:

"[T]he individual Forms 1040 and 1040A and instructions already went to print without reflecting the extenders.... [W]e would tell taxpayers through various methods, such as our web site and Publication 553, Highlights of 2006 Tax Changes, how to claim the tuition and fees deduction and educator expenses on the tax return. We would issue sales tax tables as a separate publication and make them available on our web site."

The Commissioner also noted that the IRS "would not reprint tax products this filing season to reflect the new legislation," and detailed 54 forms and publications that are affected by the Tax Relief and Health Care Act.

The Commissioner warns of potential errors and confusion due the number of tax law changes in 2006 and last-minute legislation. His warning is significant, since taxpayers and tax professionals are getting ready to start filing tax returns. Here's the Commissioner's warning:

"In addition to the impact on tax forms and instructions and returns processing systems, other consequences are associated with late enactment. Since the individual tax forms will not reflect the extender provisions, taxpayers may be confused. We anticipate receiving an increased number of phone calls as taxpayer's seek clarification. Some may delay filing their returns. Some may file incorrect returns due to the confusion, which could lead to an increase in the number of amended returns."

The Commissioner characterized 2007 as a "high risk filing season," and indicated that the re-programming the IRS computer systems might result in "delaying the start of processing individual returns."

My Recommendations Filing an Accurate Tax Return

Taxpayers will be able to file an accurate and complete tax return. Here are my recommendations for eliminating any confusion over the tax forms.

1. File an extension using Form 4868 as early as possible. This will give you an extra six months to file your tax return. You may not need all that extra time, but it will prevent any stress over rushing to meet the filing deadline.

2. Read Publication 553 as soon as it is published by the IRS. The IRS will let us know how to claim the extended tax deductions in this publication.

3. Update your tax software before filing your return. And check the software company's Web site to make sure their software reflects all the tax law changes. This will ensure that your tax return is complete, accurate, and can be processed by the IRS.

How the IRS is Responding to Tax Extenders Bill

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