Taxpayer who uses standard deduction may not use itemized deductions in computing AMT.
The starting point for determining AMTI is taxable income as reported for regular tax purposes. Sec. 55(b)(2) states, "The term `alternative minimum taxable income' means the taxable income of the taxpayer for the taxable year--(A) determined with the adjustments provided in section 56 and section 58, and (B) increased by the amount of the items of tax preference described in section 57." (Emphasis added.) Thus, a taxpayer who has elected to use the standard deduction in lieu of itemized deductions begins the computation of AMTI by using a taxable income figure that takes into account the standard deduction, but not itemized deductions.
Sec. 56(b)(1)(E) then states that, in computing AMTI, the standard deduction shall not be allowed. Thus, taxable income is increased by the amount of the standard deduction. No provision exists, however, for decreasing taxable income by the amount of itemized deductions never taken into account when computing taxable income. Without such authority, Sec. 63 precludes a taxpayer from using itemized deductions for both regular and AMT purposes.
Sec. 56(b)(1)(F) only states that, when computing AMTI, "Section 68 [overall limitation on itemized deductions] shall not apply." This provision by its terms does not permit a taxpayer to take itemized deductions not allowable for regular tax purposes. Rather, it provides that Sec. 68 limits do not apply, so that a taxpayer who has taken itemized deductions for regular tax purposes must recompute them without regard to the limitation. The legislative history underlying Sec. 68 confirms this intent: "For purposes of the alternative minimum tax, itemized deductions which are otherwise allowed in computing AMTI are not reduced by the provision (i.e., the cutback amount determined for regular tax purposes is disregarded in calculating AMTI)." A footnote adds, "This is accomplished by providing a negative adjustment for AMT purposes for the amount of the regular tax cutback in itemized deductions)." The committee language makes clear that Sec. 56(b)(1)(F) applies only when there has been an itemized deduction cutback determined for regular tax purposes, which could have occurred only if the taxpayer itemized deductions.
IRS LETTER RULING 200103073 (12/15/00)
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|Title Annotation:||alternative minimum tax|
|Author:||Fiore, Nicholas J.|
|Publication:||The Tax Adviser|
|Date:||Mar 1, 2001|
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