Abstract: The alternative minimum tax was designed to make sure taxpayers who took advantage of loopholes and shelters paid at least some federal income tax. As regular tax rates decline, more and more Americans are finding themselves subject to the AMT. Therefore it is important for CPAs to help these taxpayers recognize the potential traps. Ventas Inc. is a real estate company that owns and leases hospitals, nursing centers and personal care facilities. In tax years 1990 through 1992, the corporation claimed a targeted jobs credit under IRC section 51. In turn it reduced its wage expense for the amount of the credit under IRC section 280C. Since corporate taxpayers cannot take the credit when computing AMT, Ventas took a full wage deduction without the section 280C reduction. The IRS determined the corporation should have reduced its wage deduction even though it could not use the credit and assessed taxes, penalties and interest. Ventas paid the assessment and sued for a refund of $1,600,000 in tax, $7,500 in penalties and $1,160,000 in interest. Result. For the IRS. IRC section 55 imposes an alternative minimum tax on all taxpayers. Congress's purpose was to tax those with substantial economic income who avoided the regular tax through exclusions, deductions and credits. The AMT computation begins with taxable income and then makes the adjustments IRC sections 56, 57 and 58 require. The IRS argued taxable income means the tax return amount. Ventas argued it means taxable income calculated with deductions that are different from the regular tax. The taxpayer's basic argument is one of equity. The section 280C wage reduction was meant to prevent a taxpayer from claiming a credit and a deduction for the same wages. Since the credit is not available in the AMT system, there is no double-counting of wages. Therefore, the company should be allowed the full deduction. The Court of Federal Claims rejected this argument because the code clearly says taxpayers must start with taxable income and claim the deductions and adjustments in sections 56, 57 and 58, which do not include a restoration of the reduced wages. The court supported its conclusion by referring to section 55(b)(2). The sentence in that section that discusses alternative minimum taxable income (AMTI) as being the alternate base for taxpayers who pay tax on a base other than taxable income makes sense only if regular taxpayers start with tax return income. …
Publication Year: 2004
Publication Date: 2004-01-01
Language: en
Type: article
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Cited By Count: 1
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