Goddamn it, I want my money back!? Please.

January 10, 2008 3:46 PM

Why does the recent legislation passed to patch the Alternative Minimum Tax (AMT) affect the applicability of Education Credits (IRS Form 8863) and delay my ability to file?

I'm just stumped on how the retooling of the AMT affects my ability to file as I utilize the Lifetime Learning Credit. Are there details available anywhere via the web that discuss why this new legislation is delaying my ability to file? I am not and never have been subject to the AMT itself.

posted by Asherah to work & money (3 comments total)

If you really want to file now, you can file your return without the credits and amend your return after the IRS will accept form 8863 (Feb. 11th).

I have no idea why they delayed certain forms.
posted by itsamonkeytree at 4:25 PM on January 10, 2008

In brief, everyone is subject to the AMT, but few actually are required to pay it because they qualify for what are basically exemptions. Unfortunately, thanks to the collective wisdom of those who originally implemented the AMT, the exemptions were never indexed for inflation when they were first created in 1969. So as incomes "rose" due to inflation, more and more people became eligible to owe the AMT, and the problem got increasingly worse. The recent legislation is a stop-gap patch to try and address the problem (although they are curing the symptom, not the disease -- unless Congress passes new legislation next year -- since the patch only solves for Tax Year 2007.)

Short answer on why you're affected: Reason #1: Congress dicked around. Reason #2: there was another piece in the legislation which addresses the way the IRS processes returns with credits. The change is always attributed to "the AMT legislation," even though it's not AMT-related, per se.

Long technical tax answer:

Different credits (education, mortgage interest, elderly, DC homebuyer, foreign tax credit, etc) have different values to the IRS, and they get processed in a certain order. The federal legislation not only affected the AMT numbers (to solve for the fact that inflation was not factored in to the AMT exemptions) but also, separately, affected the order in which credits are taken against tax.

When the IRS processes a return, they have to code in by hand (for paper returns), or they can input the electronic file (for electronically filed returns). They followed a standardized sequence for returns with credits, but that process was rendered obsolete with the new credit order. So, for 2007 returns, they are having to change the workflow for millions of tax returns.

Here's a link to the IRS site that addresses your delay:

Subsequent to the passage of the AMT patch legislation, the IRS issued a directive stating that EF and paper returns which include certain credit forms will not be accepted for processing until February 11th allowing the IRS time to update and test its systems to accommodate the AMT changes.

The AMT-impacted credit forms are as follows:

Form 8863, Education Credits
Form 5695, Residential Energy Credits
Schedule 2, Child and Dependent Care Expenses
Form 8396, Mortgage Interest Credit
Form 8859, District of Columbia First-Time Homebuyer Credit

The blame for this sits squarely on Capitol Hill. The head folks at the IRS warned Congress in October: that, if they waited till the last minute to pass this corrective legislation, there would be delays on taxpayers' filing. And, instead they passed the patch bill on December 19.
posted by pineapple at 7:50 AM on January 11, 2008

Pineapple, Thanks for the in-depth explanation. I definitely understand that the blame for this lies solely with Congress and their sheer ineptitude in taking this on earlier. I was more curious about how the credits themselves were affected and you definitely gave me what I needed, thanks!
posted by Asherah at 9:43 AM on January 11, 2008