Without fix, U.S. alternative minimum tax could hit 28 million taxpayers - IRS

WASHINGTON Tue Nov 13, 2012 11:41pm GMT

WASHINGTON (Reuters) - Some 28 million Americans including some in the middle class would face an unintended tax hike if a U.S. tax aimed at ensuring the wealthy pay a minimum isn't fixed before the end of the year, the U.S. tax commissioner said on Tuesday.

The so-called alternative minimum tax was set up decades ago when it was discovered some wealthy Americans were able to avoid taxes using legal tax breaks and loopholes. It was not indexed for inflation however, and so needs to be updated every year, or "patched," in Washington parlance.

This year, the patch is caught up in the broader debate over extension of all individual tax rates enacted originally by Republican president George W. Bush in 2001, which expire at the end of the year.

"If there is no AMT patch enacted by the end of the year, the IRS (Internal Revenue Service) would be forced to operate the 2013 tax filing season based on the expiration of the AMT patch," acting IRS commissioner Steve Miller wrote in a letter to lawmakers. "There would be serious repercussions for taxpayers."

Tens of millions more taxpayers could face higher taxes because of delay in certain rules applying to taxpayers with certain tax credits, Miller said.

Democrats and Republicans both back fixing the AMT, but it could get lost if the parties don't strike a deal in their fight over tax rates paid by the wealthy.

(Reporting By Kim Dixon; Editing by Fred Barbash and Cynthia Osterman)