AMT Audit alert

My client just got a letter from the IRS for a 2008 return asking for a copy of the AMT form 6251 when there is no possible way he could need one. This
may be the start of a big headache for all of us because I believe it will affect a lot of returns, whose tax was greatly reduced by zero rate capital gains and qualified dividends.
AGI $83,717 of which $56,109 was LTCG and $18,934 was qualified dividends. Standard deduction $11,900 and 2 exemptions $7000 Taxable Income $64,818 with $0 tax because it was all qualified dividends and LTCG in the 15% bracket.
The IRS wants a form 6251, which of course was not included in such a simple e-filed return. It shows AMTI of $83,717, exemption $69,950 and income subject to AMT on line 31 of $13,767. Since it is all LTCG and QDIV, the tax is zero when you do the AMT Capital gains worksheet.
This is the first year for zero rate capital gains and qualified dividends that fall in the 15% bracket. I have a bad feeling that the IRS audit software is not prepared to deal with how this affects AMT and to the software, it looks like the taxpayer got zero tax via deductions and exemptions.
Uncompensated advice guaranteed correct or double your money back
Frank S. Duke, Jr. CPA Cincinnati, OH USA
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Frank S. Duke, Jr. wrote:

[...]
In your case, Form 6251 lines 32 and 35 are both zero, right? The form is required if line 32 is GREATER than line 35, maybe it's just a simple programming error, as you state?
-Mark Bole
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in article %8txl.24468$ snipped-for-privacy@nlpi068.nbdc.sbc.com, Mark Bole at snipped-for-privacy@pacbell.net wrote on 3/22/09 11:52 AM:

Correct, they are both zero. If this were ordinary income, line 31 would have been multiplied by 26% yielding ATM of $3579 but it was capital gains and Qdivs which are zero under the AMT.
Uncompensated advice guaranteed correct or double your money back
Frank S. Duke, Jr. CPA Cincinnati, OH USA
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I've had that happen once or twice before when AMT is $0 and no form was needed. Who knows what they were after. We sent in the requested form, but nothing came of it.
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Paul Thomas, CPA
Watkinsville, Georgia
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Paul Thomas, CPA wrote:

The instructions for Form 6251 document when it is required to be filed, including when actual AMT due is zero.
-Mark Bole
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copy
This
will
capital
dividends.
simple
QDIV,
dividends
So? Send them a 6251 showing that $0 is the bottom line.
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D. Stussy wrote:

It's not a zero-cost activity, especially for self-preparers who don't use software, and if it's due to an IRS glitch, why saddle the taxpayer with the burden?
If the letter is not proposing an adjustment in tax, what is the penalty for simply ignoring it until the IRS figures it out? Are they holding up a refund because of it?
-Mark Bole
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wrote in message

If the IRS is asking for it, they are saying that it applies, and an adjustment will be proposed.
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wrote in message

not for the AMT. They make you jump through all the hoops to show them there is zero AMT due. I don't get it, but that the way it is.
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wrote in message

it
the
and
taxpayer
penalty
They shouldn't be sending the notice if they don't agree with that.
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wrote in message

maybe they shouldn't, but they do. Perhaps the IRS does not have available the breakdown of taxable income into preference and non preference items, so if it looks like you MIGHT have to pay the AMT (using some secret formula) they make you fill out and submit the AMT form, which often shows no preference items (or none other than state income taxes) and a zero AMT.
I bet the majority of these IRS letters result in taxpayer aggravation, but yield no AMT.
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in article RoBxl.21867$ snipped-for-privacy@nlpi065.nbdc.sbc.com, Mark Bole at snipped-for-privacy@pacbell.net wrote on 3/22/09 9:15 PM:

My point is that Intuit ProSeries did not generate a 6251 for the efiled return because it judged that none was needed. My client received a letter from the IRS and, as all of us know, that is never received lightly by the client. I had to calm the client down, explain that this was not a big deal, print off a 6251 from ProSeries and respond to the letter for my client.
This takes time and effort and even after I printed the 6251, it does not show up in the "forms in use" list in ProSeries because it is not needed. The letter did not ask for it but I also sent the AMT Schedule D worksheet, which I believe is where the real answer lies.
Uncompensated advice guaranteed correct or double your money back
Frank S. Duke, Jr. CPA Cincinnati, OH USA
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wrote on 3/22/09 9:15 PM:

Lost of snippage

Frank - as an aside we too use ProSeries and have had similar issues in the past. Several years ago we made a conscious decision to FORCE print the 6251 (along with some other forms that are not required but are still informative) for EVERY return, even when it didn't apply. We did this for no other reason than that the client would already have the form in case the IRS asked for it. That way we could prove to the client that we had at least checked to see if AMT was issue for them.
We've also created several letter templates to address common issues we've encountered over the years and the AMT is one of them. When our of clients gets such a letter it takes all of about 15 minutes to bring up the boilerplate letter, fill in the IRS response info and the client's name and TIN and print it off along with a copy of the 6251 that shows no AMT. The original with my signature goes to the IRS and a copy - along with a $50 bill - goes to the client.
Many times we'll even discount the $50 back off as a Client Loyalty Discount. This shows the client that it was not OUR fault they got the letter BUT we handled it for them and saved them $50 in doing so. Talk about building client loyalty!
Gene E. Utterback, EA, RFC, ABA
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in article gqdk5g$omc$ snipped-for-privacy@news.motzarella.org, Gene E. Utterback, EA, RFC, ABA at snipped-for-privacy@alliancetax.com wrote on 3/25/09 11:55 AM:

Thanks for sharing your method Gene. It sounds like a very efficient way to handle this in a larger practice. I have a relatively small group of clients (about 100) and I know them all well. I have not accepted any new clients in 3 years and I turn away most referrals every year. I only lost 1 client this year and his situation became much less complex and he began to volunteer for AARP TaxAide so he started to prepare his own. I still prepare a 1041 for his deceased wife's trust. I provide very personalized service and charge appropriately (average return $650). As a result, I do everything I can to protect them from receiving IRS communications and having to respond to them.
Unless the IRS communication is because my client forgot to give me some information, I do not charge them for responding. I too print out the 6251 whether it is needed or not. Most of my clients are subject to AMT and I hand comment on their copy of the form to show them where they have had their exemption reduced or what parts of their income got hit at 28%. If they are not subject to AMT, I show them where they stand, how close they came.
I do not use the standard print commands in ProSeries because I hand select the forms I want to print. I attach every document my client gave me to the worksheet it was entered on and highlight the data items that were entered on both documents so the client can see where the data came from. This provides a strong accuracy check. For example, I might print education forms to show my client that their son or daughter's college tuition was considered but their income disqualified them from any benefits.
The vast majority of my clients have incomes over $100,000 and expect the level of service I provide. My only EIC this year was for someone who passed away with 1/2 year of income. My goal is that the returns will be 100% accurate, take advantage of everything to which my clients are entitled and they will never hear from the IRS unless by mistake. It is nice to be retired from another job and be able to focus on the highest quality returns instead of making a lot of money.
Uncompensated advice guaranteed correct or double your money back
Frank S. Duke, Jr. CPA Cincinnati, OH USA
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