Conceding that a full-blown repeal of the alternative minimum tax may now be near-impossible, representatives of the nation's enrolled agents urged Congress to place new restrictions on the type of tax preparers authorized to prepare AMT returns."Repealing the full AMT would be a huge step in the simplification of the Tax Code, but one that may no longer be in the cards," EA Frank Degen told the Senate Finance Committee on behalf of the National Association of Enrolled Agents. "Practically, we admit that full repeal of the AMT may be a bridge too far for Congress to cross."
At a minimum, though, Degen said that legislators should sharply limit the scope of the controversial tax by establishing standards for the tax professionals who are allowed to prepare AMT returns.
Producing an accurate return, the New York-based EA testified, is often "a complex and non-intuitive exercise, and tax preparers should be required to demonstrate their ability to interpret the Tax Code - especially when the AMT comes into play."
Raising concerns about the number of mistakes that are made in preparing returns with the AMT, Degen told the committee that, "The preparation of complex returns, like those with the AMT, should not be left to amateurs."
Supporters of restrictions on tax professionals permitted to prepare AMT returns contend that such requirements would help to soften the revenue loss resulting from limitations on the AMT.
Citing a 2006 report by the Government Accountability Office, Degen told Congress that the investigators uncovered numerous instances of "incompetent preparation by chain preparers, often resulting in large refund overclaims" to taxpayers not entitled to them.
To reduce the incidence of slipshod AMT tax returns, the NAEA spokesman called for enactment of the pending Taxpayer Protection and Assistance Act, which would require an initial competence exam for all unenrolled tax preparers, plus continuing education for all paid preparers.
OH, AND REDUCE THE AMT
In addition to limiting the number of professionals allowed to prepare AMT returns, Degen said that if the controversial tax is permitted to continue, it should be significantly reduced in scope.
"The AMT should affect only taxpayers Congress believes are engaging in the most egregious tax avoidance," he testified. "At a minimum, the personal exemptions and standard deductions allowed under the regular income tax should not be disallowed, and Schedule A exclusion items, such as medical expenses, all taxes, and miscellaneous deductions, should also be permitted."
In addition to narrowing the AMT, Degen said that the tax should be made permanent to facilitate long-term tax planning, and should be indexed for inflation.
For their part, top officials at the Senate's tax-writing committee agreed with Degen and other witnesses at the hearings who called for changes in the alternative minimum tax.
"The AMT is like a bad horror movie," quipped Finance Committee Chairman Max Baucus, D-Mont. "The unsuspecting victim thinks that everything is okay, but a monster lurks around the corner ... waiting to pounce."
Warning that the AMT has strayed far from its original purpose, Baucus said that today, "More people making less than $100,000 pay the AMT than people making more than $1 million. That does not make sense to me."
Baucus' GOP counterpart on the committee, Sen. Chuck Grassley of Iowa, agreed that action is urgently needed to resolve the AMT problem, noting that time has already run out for millions of taxpayers who will find themselves subject to loss of tax deductions and exemptions this year unless Congress moves quickly to provide relief.
"Right now, millions of Americans don't know whether they should be paying an estimated tax because Congress hasn't passed AMT relief," Grassley told lawmakers. "By law, many of these taxpayers should be paying estimated tax right now based on the fact that, as the law is today, they are subject to the AMT."
To address this immediate concern, Grassley said that he would introduce stop-gap legislation allowing taxpayers to disregard the AMT in computing their 2007 taxes if they were not liable for the AMT for the preceding tax year.
If enacted, the bill would protect these individuals from penalties for failing to file estimated taxes for the AMT during the current tax year.
"Just because Congress can't do its job doesn't mean the taxpayer should be punished," Grassley said.
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