IRS prepares for first spike in 2008 filing season

The end of February usually marks the first spike in the filing season. This year, everyone is watching for how well the IRS is prepared to handle the first wave of returns while at the same time reprogramming its computer systems for the alternative minimum tax (AMT) patch. The IRS is encouraging taxpayers to file electronically, hoping to break the 60 percent threshold for e-filing this year.

AMT patch
Tax planning strategies do not come in a one-business-fits-all package. Tax planning is as unique and varied as today's businesses and, while certain traditional planning approaches can help businesses across the board minimize or defer taxes, every plan must account for the particular needs and circumstances of the company. However, three factors will affect year end planning for every business, including: business structure, accounting method and anticipated profits and losses for 2007 and 2008 of the company.

In late December 2007, Congress passed the AMT patch. The AMT patch gives taxpayers higher exemption amounts and allows them to use most nonrefundable personal credits to offset AMT liability for the 2007 tax year. The 2007 AMT exemption amounts are $44,350 for single taxpayers and heads of household; $66,250 for married couples filing jointly; and $33,125 for married couples filing separately.

Because Congress passed AMT relief so late in the year, the IRS had little time before the start of the filing season to reprogram its computers to process the patch. Therefore, the IRS decided to delay the processing of returns with some AMT patch-related forms and schedules. The five forms are:

• Form 8863, Education Credits;
• Form 5695, Residential Energy Credits;
• Schedule 2, Form 1040A, Child and Dependent Care Expenses for Form 1040A Filers;
• Form 8396, Mortgage Interest Credit; and
• Form 8859, District of Columbia First-Time Homebuyer Credit.

The IRS has predicted it will begin processing returns with these forms on February 11. Taxpayers filing any of these five forms must wait to file their returns. The IRS will reject these forms if taxpayers file them before February 11.

Initially, the IRS indicated that as many as 13.5 million taxpayers would have to wait to file their returns. Recently, the agency lowered its prediction to roughly three million.

Electronic filing
The IRS is also continuing to encourage individuals to file their returns electronically. Not only does e-filing save the IRS money (it costs the agency $0.29 to process an e-filed return compared to $2.65 for a paper return), e-filing generally gets taxpayers quicker refunds. CDH strongly encourages as many clients as possible to e-file their returns. The cost is $3.00 for Federal returns, and $1.00 for state returns.

Last year, about 57 percent of taxpayers filed electronically. The IRS is striving to break the 60 percent threshold for e-filing during the 2008 filing season.

1040 Central
The IRS has assembled all of its filing season news and online tools at www.irs.gov. A special page called "1040 Central" links taxpayers to IRS e-file, forms and publications, tips for choosing a preparer and warnings about email scams, tax evasion, and other criminal activity. The page also links users to questions and answers about the AMT patch. Another online tool, "Where's My Refund?" enables taxpayers to track their refunds.

E-mail scams
The IRS is also warning taxpayers to be on guard for scam e-mails. Criminals posing as the IRS "phish" the internet for victims. If you receive an e-mail from the IRS promising a refund, be very cautious. The IRS never communicates with taxpayers by unsolicited e-mail. The e-mail is most likely a scam. If you open it, you could infect your computer with malware that allows criminals to access your personal information.


If you have any questions about the filing season, please call Mike Scialo, Tax Manager, or send us an email. We'll be sure to keep you posted on all the important developments this filing season.

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