Evading (not avoiding) the AMT

Commentator? Interesting.

Because underclaiming deductions can result in more EITC than the IRS believes the taxpayer is entitled to.

There's got to be more to this case than meets the eye. Probably other issues were at stake other than AMT. What was the name of the case? no law says one has to claim deductions on schedule A. It's entirely optional. So if none claimed, then none need be added back for amt. ChEAr$, Harlan Lunsford, EA n LA

Underclaiming business deductions on Schedule C could affect EIC, but underclaiming (state tax) deductions on Schedule A would have no effect on EIC.

-- Don EA in Upstate NY

Here is a link to the transcript of the show in question.

The question is from Peter of Washington, DC. Unfortunately, Kevin McCormally doesn't provide the name of the case in his response.

Believe the case NAILA M. QURESHI, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee found at

decided September 6,2006 is the applicable one.

""Bill Brown" wrote:

Believe the case NAILA M. QURESHI, Plaintiff-Appellant, v. UNITED STATES, Defendant-Appellee found at

September 6,2006 is the applicable one.""

If this is, indeed, the case, then the issue wasn't a merely theoretical one concerning the AMT where the bottom-line tax liability doesn't change. According to the appellate court's recitation of the facts, the plaintiff taxpayer originally claimed a refund of $3,744.01, which the IRS disallowed in part, allowing the taxpayer a refund of only $2,334.01. The reason for the disallowance was that, on audit, the IRS determined that the taxpayer was subject to the AMT and thus owed additional taxes (i.e., the excess of the AMT tentative tax over the regular tax liability) in the amount of $1,410. In other words, on her return as filed, the taxpayer showed only a regular tax liability of $6,559, which the IRS increased to $7,969 on the basis that the taxpayer had failed to compute her AMT which, when computed, resulted in an AMT liability of $1,410 that the taxpayer had not reported on her return as filed. Thus, the dispute was not purely academic because the impact of the AMT most definitely increased the taxpayer's tax liability over what it was solely under the regular tax. The "I didn't deduct my state/local taxes" issue arose in the context of the plaintiff taxpayer's claim that she was not subject to the AMT in the first place because she had not deducted her state and local income taxes. In other words, the taxpayer was claiming that deducting one's state and local taxes was a condition precedent to the imposition of the AMT. This is clearly not the case, as the AMT is imposed regardless of whether or not one deducted one's state and local taxes. See Code Sec. 55(a) "There is hereby imposed (in addition to any other tax imposed by this subtitle) a tax equal to the excess (if any) of - (1) the tentative minimum tax for the taxable year, over (2) the regular tax for the taxable year." Thus, if the case of Qureshi v. U.S. (Fed Cir, 9/06/2006, No. 06-5002) is in fact the case referred to by the OP, then the OP misconstrued the case. It is not about the IRS asserting mandatory deductions for state and local taxes in an otherwise academic case concerning the AMT where the imposition of the AMT does not change the bottom-line tax liability, it is merely a garden-variety case in which the taxpayer failed to compute her additional AMT, on the false premise that the failure to deduct her state and local taxes insulated her from the AMT, and the IRS properly reduced her claimed refund when it properly asserted the additional AMT liability against the taxpayer.

There are no "academic" tax cases.

I have watched this and other threads with great interest. For the past two years my income has been unusually large, due to the sale of shorefront property in a state other than my home state. Obviously this had tax ramifications in both states. Being somewhat naive, I went ahead and listed the large taxes as deductions. My AMT was several thousand dollars in each year. (None next year I presume as my income returns to normal levels.) I have already filed my tax return for this year, and obviously last as well. I focus on your discussion of whether or not the law says (or implies) that once you have chosen to itemize, you then have an obligation to itemize fully. So my first question is: Do you? If possible, for example, to understate state taxes, my next question is under what circumstances would benefit to the AMT accrue? I currently have a refund of $301. As an extreme test, using TurboTax, I reduced my state taxes to zero to see what would happen. The result was an amount due of over $1300. (My AMT of course went to 0.) Obviously there was no benefit to omit my state taxes as deductions. If I looked at various levels of understatement, however, would there have been some level at which there would have been benefit to such understatement? If understatement is allowable, would there have been great benefit to finding that "critical level" that would have minimized my total tax? Or would that benefit have been relatively small. I realize that computation of AMT is complex and you don't have exact figures, but I'm just looking for a rule of thumb as well as perhaps some consolation that I haven't paid much more than I needed to. Thanks very much for your help! Frank

They're all academic except when they involve my clients.

Stu

No, there wouldn't have been.

Here's the deal -- under the AMT system, state and local income and property taxes are not deductible, So whether or not you understate them, your tentative minimum tax (TMT) will be unchanged. All that understating them will do is increase your regular tax (RT). Your total tax liability is MAX(TMT, RT) and the AMT line is MAX(TMT-RT, 0). So while understating the deductions may reduce the AMT line to zero, it can never save you money (because doing so leaves TMT unchanged) and may cost you money (if you manage to boost RT over TMT).

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

They're all academic except when they involve my clients.

Stu

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Messrs Brown and Bronstein:

I quite agree with both of you, there are no academic tax cases, particularly when they involve my client. I believe that was the point of my original comment, namely, that the IRS was not engaged in a pointless, academic exercise to score the point that deductions were mandatory, in a case where the taxpayer's bottom-line tax liability didn't change as a result, but that there were real dollars in play, and that the IRS had asserted a substantial deficiency against the taxpayer on the ground that she had failed to properly calculate her AMT liability.

I agree completely - it's primarily about collecting the tax in the individual case. I've seen the IRS take inconsistent positions when the position in the individual case would result in higher taxes. But I've also seen them be very reasonable in some cases. Stu