Tax Return Filing Delays Likely

By Stanley Rose January 6, 2013

The annual race known as tax return filing season has barely begun, and Murphy’s Law (this time masquerading as Congress and the IRS) has ensured that millions of taxpayers and their accountants will ungracefully stumble out of the gate.  Most of our readers undoubtedly are familiar with the so-called “fiscal cliff” legislation (the “Act”), which we previously summarized in a January 2 Tax Advisory.  Most of its provisions became effective this month, but some unexpectedly were made retroactive to the beginning of 2012. Although the retroactive changes will be widely accepted as favorable by most taxpayers, they created the need for many tax forms that were already dressed and ready to take the field instead to be sent back to the IRS locker room for changes.

More specifically, the IRS delayed processing of all 2012 individual tax returns until January 30.  However, many other returns will be delayed until “late February or into March” because the changes are more difficult to incorporate into certain forms.  An example of the latter category includes forms reporting depreciation deductions, various energy credits, passive losses, general business credits, and the Domestic Production Activities Deduction.  Unfortunately, this list includes forms required by many of our clients, some of whom file corporate returns that are due by March 15.

The federal delay seems daunting enough, but adding to the challenge is the fact that many 2012 state tax returns will need to be overhauled as well.  Many states still are in the process of determining whether or not their tax laws will conform to the updated federal laws (including the retroactive ones).  In some cases, conforming will require additional action at the state level, because existing state laws often accomplish conformity by referencing federal laws enacted as of a certain date.  Maine’s governor recently indicated he will propose legislation that will conform Maine’s rules to the federal changes that impact 2012.  Maine Revenue Services acknowledges the possibility that late legislative action may require taxpayers to file amended returns.  Undoubtedly, other states are engaged in the same scramble.

Finally, after the states have sorted out whether to conform to the law and how the conformity, or lack thereof, will be reported on the forms (two separate steps), tax return software companies must incorporate federal and state changes into their programming.  My own observation is that they tend to move relatively quickly with IRS changes and those of the more populous states, but forms of the smaller states are the last to be made available to us.

Hopefully the IRS will be able to implement these changes more quickly than they anticipate, but it seems quite possible that more taxpayers than usual will need to request extensions of time to file their returns. We will monitor IRS and state progress with interest and will work with our clients in accommodating these changes as efficiently as possible.  For more information, please refer to the following links.

Federal delays to January 30

Federal forms requiring delays to February/March

Maine Tax Alert

If you would like to discuss further, please call your BNN advisor or Stan Rose.