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Retroactive AMT break may be available to individuals and corporations.

In Letter Rulings (TAM) 9320003 and 9321063, the IRS has further solidified the concept that the regular tax and the alternative minimum tax (AMT) are two separate and independent taxing systems. In these rulings, the Service has indicated that deductions based on adjusted gross income (AGI) or taxable income should be computed separately for regular tax as well as for AMT purposes.

The rulings specifically addressed the charitable contribution percentage limitations of Sec. 170(b)(1) and the percentage depletion limitations under Sec. 613A(d)(1); however, the concept should apply to any items determined with reference to AGI or taxable income.

For regular tax purposes, an individual's charitable contribution deduction is generally limited to 50% of AGI. Any amount disallowed currently can be carried forward for a period of five years at which time the carryovers expire and the deductions are lost forever. The IRS has determined that because the AMT is a separate and independent taxing system, these limitations are determined separately for AMT and regular tax purposes. This may give rise to different allowable charitable contribution deductions and carryovers for AMT and regular tax.

Letter Ruling 9320003 was the result of an amended return filed by a taxpayer who had negative AGI and taxable income for regular tax purposes but positive AMT AGI and AMT taxable income. (These differences, although not disclosed in the ruling, may have been caused by regular tax versus AMT differences, such as passive losses under the Tax Reform Act of 1986 phase-in provisions, long-term contract reporting, depreciation, etc.) This particular individual had extensive current year charitable contributions as well as charitable contribution carryovers that were about to expire. Expiring carryovers, other years' carryovers and current year deductions were used to reduce the AMT, thereby generating a refund to the taxpayer. Form 6251, used to calculate an individual taxpayer's AMT liability, is not constructed to consider these differing deductions (although it may be in the future).

Although these rulings involved individuals, the theory behind them should be applicable to corporations as well.

Taxpayers with tax years open under the statute of limitations that were subject to the AMT may be able to amend their returns and obtain refunds based on these rulings.
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Title Annotation:alternative minimum tax
Author:Haskell, Arnold
Publication:The Tax Adviser
Article Type:Brief Article
Date:Oct 1, 1993
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