AMT "Ifs and Buts": Considering Prospects for 2012 and Beyond

AMT "Ifs and Buts": Considering Prospects for 2012 and Beyond

By Suellen Wolfe, J.D., LL.M. *

In 1986, Congress concluded that "that no taxpayer with substantial economic income [should be able to] avoid significant tax liability by using exclusions, deductions, and credits. Although these provisions may provide incentives for worthy goals, they become counterproductive when taxpayers are allowed to use them to avoid virtually all tax liability. The ability of high-income individuals and highly profitable corporations to pay little or no tax undermines respect for the entire tax system and, thus, for the incentive provisions themselves. In addition, even aside from public perceptions, ... it is inherently unfair for high-income individuals and highly profitable corporations to pay little or no tax due to their ability to utilize various tax preferences." [S Rep No 313 (1986 Sen Rep), 99th Cong, 2nd Sess 518 (1986). To the same effect, see HR Rep No 426 (1986 House Rep), 99th Cong, 1st Sess 305 (1985); Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1986 432, JCS-10-87 (May 4, 1987) (1986 Blue Book); and Staff of the Joint Committee on Taxation, Present Law and Issues Relating to the Individual Alternative Minimum Tax ("AMT"), JCX-3-98 (Feb 3, 1998). The primary purpose of the present and prior minimum tax rules is to extract tax from taxpayers with substantial incomes. In some cases, however, minimum tax rules have affected less prosperous taxpayers. Some of these taxpayers have argued that, despite the clear meaning of the statute, they should be exempt from paying any minimum tax because they are not within the group of taxpayers that Congress intended to target for minimum tax treatment. In cases involving prior-law minimum tax rules, the Tax Court has rejected this argument.]

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Going Forward: How the AMT May Impact Corporate and Individual Interests

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On February 13, 2012, the Treasury Department released its "green book" explanation of the Obama administration's fiscal 2013 revenue proposals, including detailed revenue estimates. U.S. Dept of Treas, "General Explanations of the Administration's Fiscal Year 2013 Revenue Proposals (Feb. 2012). The Obama administration proposes to eliminate capital gains taxation on investments in small business stock. The 100-percent exclusion for qualified small business stock would be permanent. The AMT preference item for gain excluded under IRC § 1202(a)(4)(C) would be repealed for all excluded small business stock gain. These changes would be effective for qualified small business stock acquired after December 31, 2011.

Under the Small Business Jobs Act, P.L. 111-240 (2010), taxpayers, other than corporations, may exclude 100 percent of the gain from the sale of qualified small business stock that is acquired after September 27, 2010 and before January 1, 2011, and that is held for at least five years, upon satisfaction of various requirements. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, P.L. 111-312, extended this 100-percent exclusion to eligible stock acquired before January 1, 2012. The excluded gain is not a preference under the AMT for stock acquired during this period. The proposal would make the 100-percent exclusion for qualified small business stock permanent. The AMT preference item for gain excluded under IRC § 1202 would be repealed for all excluded small business stock gain. The proposal would be effective for qualified small business stock acquired after December 31, 2011.

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The baseline of the Budget Enforcement Act (BEA), P.L. 99-177, 2 U.S.C 900, attempts to reflect projected receipts level under current law. The baseline is intended to provide a realistic measure of the deficit outlook before new policies are enacted. The Obama Administration presents an adjusted baseline to reflect permanent extension of relief from the AMT.

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The Administration's baseline includes the cost of permanently extending the tax cuts found in the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), P.L. 107-16 (2001) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), P.L. 108-27 ( 2003). This would include the child tax credit as provided under EGTRRA, § 201, as amended by the American Recovery and Reinvestment Act of 2009 (ARRA); that is, a credit of $ 1,000 per child, allowed against regular tax and the AMT...

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* Suellen Wolfe is engaged in the private practice of law in Pennsylvania where she is also licensed as a Certified Public Accountant. She received her LL.M. (taxation) from New York University School of Law. Ms. Wolfe has taught as a visiting professor at law schools throughout the United States. She previously served as Chief Deputy Attorney General, Tax and Finance Section and Chief Deputy Attorney General, Charitable Trusts and Organizations Section of the Office of Attorney General, Commonwealth of Pennsylvania and Counsel to the Pennsylvania Board of Finance & Revenue. Ms. Wolfe is the Update Author of Tax Planning for the Alternative Minimum Tax (Matthew Bender).

 

LEXIS users can access the complete commentary HERE. Additional fess may apply. (Approx. 7 pages)

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RELATED LINKS: For more information on the Alternative Minimum Tax, see:

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