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No Early Filing for Some Taxpayers

Many times I pity the folks at the IRS. I really do. I'm not saying this with my tongue planted firmly in my cheek ... I really mean it. Congress continues to create tax legislation that is close to incomprehensible and charges the employees at the IRS with the task of interpreting and implementing such gibberish. It's a sad state of affairs.

Where to place the blame
I know and understand that many of you out there think the IRS is the bad guy. Sadly, the professionals at the IRS have had to live with this misconception for too many years. Remember that it's Congress who writes the law and the president who signs it. Then it gets thrown to the folks at the IRS to create the tax forms, write the instructions, and prepare publications in an attempt to explain the laws that, in many cases, are virtually unexplainable. And on top of that, they are then charged with collecting taxes based on laws that very few understand. It's too bad that this misplaced acrimony isn't directed at the feet of Congress, where it belongs.

And this year is no exception for the good folks at the IRS. They had to deal with three major pieces of tax legislation in 2006. In past months, I have summarized this legislation. However, the cherry on the sundae was the recent passage of the Tax Relief and Health Care Act of 2006. When I summarized that act, I was incredulous that such changes would be passed so late in the year, after IRS computer changes had already been made and 2006 tax forms had already gone to the printer. In effect, Congress did something nice for taxpayers in extending some of these tax reduction provisions; however, they made 2006 tax preparation and IRS oversight and processing even more challenging by waiting so long to act. It's something that should have been done much earlier in the year. Heck, if it's good legislation in December, it should have been good legislation in June. I guess trying to get elected (or re-elected) is much more fun and exciting than running the country.

Suspension of early filing
Regardless, the IRS has gotten caught in the crossfire. The IRS recently announced that this last set of changes to the law threw the 2007 tax filing season into a cocked hat, and that tax returns claiming the newly enacted deductions and credits will not be processed until early February. So if you do have one of these "extender" deductions on your 2006 tax return, you might simply want to cool your heels with filing your tax return for a few more weeks.

In the announcement, IRS Commissioner Mark W. Everson stated, "The IRS will not be able to process tax returns claiming these extender-related deductions until early February. Based on filings earlier this year, only about 930,000 tax returns claimed any of the three extenders provisions by Feb. 1. This year, the IRS expects to receive about 136 million tax returns."

The commissioner noted that e-filing would speed the process of obtaining your tax refund, but it appears that if an e-filed return is submitted prior to early February with any of the "extender" deductions claimed, it'll be rejected by the IRS. Or it's possible that the IRS will hold these e-filed returns until its computer system is up and running. And if you're planning on filing a paper tax return with any of these provisions, good luck. In fact, I've been told that many of the popular do-it-yourself tax preparation software programs were originally published without the capability to claim these deductions without downloading a fix or patch from the software's website. So if you're one of the many using one of those programs, make especially sure that you have the most up-to-date version.

Where is the hang-up?
The deductions that are causing the pain are:

The IRS announcement advises how to claim these deductions if you're filing a paper return. So make sure you (and your tax preparer or software program) are in compliance with these changes. If not, your return could get caught in IRS purgatory, if not rejected totally and kicked back to you.

And yes, the IRS indicates that these deductions aren't claimed by that many taxpayers (I'm not sure those folks living in a non-income-tax state, allowing them to use the sales tax deduction, would agree), and those who do claim these deductions usually file later in the year anyway. But that's only a small consolation if you're the one with the deduction who wants to file early. So, as with many government programs, prepare to hurry up and wait.

Just don't blame the IRS!

Roy Lewis has become a bit peeved telling some of his early filers why they can't. So please indulge him his ranting. But he also understands that The Motley Fool is all about investors writing for investors. You can take a look at the stocks he owns as long as you promise not to ask him which stock to buy or sell.


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