Klaassen v. Commissioner

T.C. Memo. 1998-241

UNITED STATES TAX COURT

DAVID R. AND MARGARET J. KLAASSEN, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 11210-97. Filed July 2, 1998.

David R. Klaassen and Margaret J. Klaassen, pro sese.

Charles J. Graves, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ARMEN, Special Trial Judge: This case was heard pursuant to

the provisions of section 7443A(b)(3) and Rules 180, 181, and

182.1

1
Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for 1994, the taxable year in
(continued...)
 - 2 -

Respondent determined a deficiency in petitioners' Federal

income tax for the taxable year 1994 in the amount of $1,085.43,

as well as an addition to tax under section 6654(a) in the amount

of $66.36. The deficiency in income tax is solely attributable

to the alternative minimum tax prescribed by section 55.

After a concession by respondent,2 the only issue for

decision is whether petitioners are liable for the alternative

minimum tax.

FINDINGS OF FACT

Some of the facts have been stipulated, and are so found.

Petitioners resided in Marquette, Kansas, at the time that their

petition was filed with the Court.

Petitioners are husband and wife. Petitioners are also

members of the Reformed Presbyterian Church of North America (the

Church). Members of the Church are taught that the production of

many offspring is a blessing. Accordingly, petitioners are

opposed to birth control and abortion.

Petitioners have a large family. In 1994, the taxable year

in issue, petitioners had 10 children. Shortly before trial,

their 13th child was born. All of petitioners' children qualify

as petitioners' dependents within the meaning of section 151(c).

1
(...continued)
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
2
At trial, respondent conceded that petitioners are not
liable for the addition to tax under sec. 6654(a).
 - 3 -

Petitioners timely filed a joint Federal income tax return,

Form 1040, for 1994. On their return, petitioners properly

claimed a total of 12 exemptions; i.e., two for themselves and 10

for their children. Petitioners reduced their income by the

aggregate value of the 12 exemptions, or $29,400.3

For 1994, petitioners itemized their deductions on Schedule

A. Included on Schedule A were deductions for medical and dental

expenses in the amount of $4,767.13 and state and local taxes in

the amount of $3,263.56.

Petitioners neither completed nor attached Form 6251

(Alternative Minimum Tax--Individuals) to their 1994 income tax

return, nor did petitioners report any liability for the

alternative minimum tax on line 48 of Form 1040.

In March 1997, respondent issued a notice of deficiency to

petitioners for the taxable year 1994. In the notice of

deficiency, respondent did not disallow any of the deductions or

exemptions claimed by petitioners on their Form 1040 for purposes

of the income tax imposed by section 1(a). Rather, respondent

determined that petitioners are liable for the alternative

minimum tax prescribed by section 55. In computing the

alternative minimum tax, respondent conceded that petitioners

have no items of tax preference within the meaning of section 57.

Respondent's determination of the alternative minimum tax is

3
For 1994, each exemption had a value of $2,450.
 - 4 -

based on the following computation and entries from petitioners'

income tax return:

I. Individual Income Tax Return - Form 1040
Adjusted Gross Income
(Form 1040, line 31) $83,056.42
Less: Itemized Deductions
(Schedule A) -19,563.95
Balance (Form 1040, Line 35) 63,492.47
Less: Exemptions
(Form 1040, Line 36) -29,400.00
Taxable Income
(Form 1040, Line 37) 34,092.47

Regular Tax (sec. 1(a))
(Form 1040, Line 38) 5,111.00

II. Itemized Expenses - Schedule A
Medical Expenses
Actual expenses $10,996.36
Less: 7.5% AGI -6,229.23
Deductible amount 4,767.13
State and Local Taxes 3,263.56
Interest Paid 3,585.76
Charitable Contributions 7,947.50
Total Itemized Deductions 19,563.95

III. Alternative Minimum Taxable Income
Taxable Income (Form 1040, Line 37) $34,092.47
Adjustments
1
Medical expenses (10% floor) 2,076.41
State and local taxes 3,263.56
Exemptions 29,400.00
Balance 68,832.44
Plus: Items of Tax Preference -0-
Alternative Minimum Taxable Income 68,832.44

IV. Alternative Minimum Tax
Alternative Minimum Taxable Income $68,832.44
Less: Exemption Amount -45,000.00
Taxable Excess 23,832.44
Times: applicable AMT rate x 26%
Tentative Minimum Tax 6,196.43
Less: Regular Tax -5,111.00
Alternative Minimum Tax 1,085.43
1
The adjustment is computed as follows:

Actual Medical Expenses $10,996.36
Less: 10% AGI -8,305.64
AMT deductible amount 2,690.72
 - 5 -
Schedule A medical deduction 4,767.13
Less: AMT deductible amount -2,690.72
Adjustment 2,076.41

OPINION

Our analysis necessarily begins with section 55, the section

of the Internal Revenue Code that imposes the alternative minimum

tax. Initially, we note that the alternative minimum tax is

imposed in addition to the regular tax and that the "regular tax"

is, as relevant herein, the income tax computed on taxable income

by reference to the pertinent tax table. See sec. 55(a), (c)(1).

In petitioners' case, the "regular tax" is $5,111; i.e., the

amount reported on line 38 of petitioners' Form 1040.

Pursuant to section 55(a), the alternative minimum tax is

the difference between the "tentative minimum tax" and the

"regular tax". As relevant herein, the "tentative minimum tax"

is 26 percent of the excess of a taxpayer's "alternative minimum

taxable income" over an exemption amount of $45,000. See sec.

55(b)(1)(A)(i)(I), (b)(2), (d)(1)(A)(i).

Section 55(b)(2) defines the term "alternative minimum

taxable income". As relevant herein, the term "alternative

minimum taxable income" means the taxpayer's taxable income for

the taxable year determined with the adjustments provided in

section 56 and increased by the amount of items of tax preference

described in section 57. Petitioners had no items of tax

preference in 1994. Accordingly, alternative minimum taxable
 - 6 -

income means petitioners' taxable income determined with the

adjustments provided in section 56.

Petitioners' taxable income for 1994 was $34,092.47, the

amount reported on line 37 of Form 1040.

As relevant herein, the adjustments provided in section

56(b) are threefold. First, section 56(b)(1)(A)(ii) states that

no itemized deduction for State and local taxes shall be allowed

in computing alternative minimum taxable income. Second, section

56(b)(1)(B) states that in determining the amount allowable as a

deduction for medical expenses, a floor of 10 percent shall be

applied in lieu of the regular 7.5 percent floor. See sec.

213(a). Third, section 56(b)(1)(E) states that no personal

exemptions shall be allowed in computing alternative minimum

taxable income.

The effect of section 56(b)(1)(A)(ii), (b)(1)(B), and

(b)(1)(E) is to increase petitioners' taxable income by: (1)

$3,263.56, the amount claimed on petitioners' Schedule A for

State and local taxes; (2) $2,076.41, the difference between the

amount allowable as a deduction for medical expenses on Schedule

A and the amount allowable as a deduction for medical expenses

for purposes of the alternative minimum tax; and (3) $29,400, the

amount claimed on petitioners' Form 1040 for personal exemptions.

After taking into account the foregoing three adjustments,

petitioners' alternative minimum taxable income for 1994 equals

$68,832.44. Alternative minimum taxable income exceeds the
 - 7 -

applicable exemption amount of $45,000 by $23,832.44. See sec.

55(d)(1)(A)(i). Petitioners' "tentative minimum tax" is

therefore 26 percent of that excess, or $6,196.43. See sec.

55(b)(1)(A)(i)(I). Because petitioners' tentative minimum tax

exceeds petitioners' regular tax of $5,111, petitioners are

liable for the alternative minimum tax in the amount of such

excess; i.e., $6,196.43 less $5,111, or $1,085.43.

Petitioners do not challenge the mechanics of the foregoing

computation. Rather, petitioners contend that they are not

liable for the alternative minimum tax for two independent

reasons. First, petitioners contend that the elimination of

personal exemptions under the alternative minimum tax adversely

affects large families and results in an application of the

alternative minimum tax that is contrary to congressional intent.

In this regard, petitioners argue that legislative history

demonstrates that the alternative minimum tax was intended to

limit items of tax preference, not personal exemptions.

Second, petitioners argue that the alternative minimum tax

violates various constitutional rights, particularly the right to

religious freedom.

A. Congressional Intent

We begin with petitioners' contention that they are not

liable for the alternative minimum tax because such tax was not

intended to apply to them. In this regard, petitioners emphasize

that they did not have a single item of tax preference, and they
 - 8 -

argue that they are being unfairly saddled with the alternative

minimum tax simply because of the size of their family.

The clearest expression of legislative intent is found in

the actual language used by Congress in enacting legislation. As

the Supreme Court has stated, "There is * * * no more persuasive

evidence of the purpose of a statute than the words by which the

legislature undertook to give expression to its wishes." United

States v. American Trucking Associations, Inc., 310 U.S. 534, 543

(1940); see Rath v. Commissioner, 101 T.C. 196, 200 (1993)

(controlling effect will generally be given to the plain language

of a statute, unless to do so would produce absurd or futile

results). Again as the Supreme Court has stated:

in the absence of a clearly expressed legislative
intention to the contrary, the language of the statute
itself must ordinarily be regarded as conclusive.
Unless exceptional circumstances dictate otherwise,
when we find the terms of a statute unambiguous,
judicial inquiry is complete. [Burlington N. R.R. Co.
v. Oklahoma Tax Commn., 481 U.S. 454, 461 (1987);
citations and internal quotation marks omitted.]

Accordingly, where, as here, a statute appears to be clear on its

face, unequivocal evidence of a contrary purpose must be

demonstrable if we are to construe the statute so as to override

the plain meaning of the words used therein. Estate of Owen v.

Commissioner, 104 T.C. 498, 507-508 (1995), and cases cited

therein; Huntsberry v. Commissioner, 83 T.C. 742, 747-748 (1984).

"The statutory scheme governing the imposition and

computation of the alternative minimum tax is clear and precise,
 - 9 -

and leaves, on these facts, no room for interpretation." Okin v.

Commissioner, T.C. Memo. 1985-199, affd. per curiam 808 F.2d 1338

(9th Cir. 1987). Thus, there is no justification, in the instant

case, to ignore the plain language of the statute, particularly

where, as here, "we have a complex set of statutory provisions

marked by a high degree of specificity." Huntsberry v.

Commissioner, supra at 748.

The alternative minimum tax serves to impose a tax whenever

the sum of specified percentages of the excess of alternative

minimum taxable income over the applicable exemption amount

exceeds the regular tax for the taxable year. Sec. 55(a),

(b)(1)(A), (c), (d)(1); cf. Huntsberry v. Commissioner, supra at

744. "Alternative minimum taxable income" essentially means the

taxpayer's taxable income for the taxable year determined with

the adjustments provided in section 56 and increased by the

amount of items of tax preference described in section 57.

In Huntsberry v. Commissioner, supra, we held that tax

preferences are a significant, but not necessarily an

indispensable component, of "alternative minimum taxable income".

Accordingly, the taxpayers in that case were held liable for the

alternative minimum tax computed in accordance with the specific

provisions of section 55, notwithstanding the fact that the

taxpayers did not have any items of tax preference for the

taxable year in issue. The same result applies in the present

case.
 - 10 -

If Congress had intended to tax only tax preferences, it

would have defined "alternative minimum taxable income"

differently, for example, solely by reference to items of tax

preference. Instead, Congress provided for a tax measured by a

broader base, namely, alternative minimum taxable income, in

which tax preferences are merely included as potential

components.

The foregoing analysis leads to the conclusion that the

alternative minimum tax is triggered by a number of factors,

including the value of personal exemptions claimed on a

taxpayer's return, and that respondent correctly determined such

tax on the facts of this case. Accordingly, because we can

understand and apply the plain meaning of unambiguous statutory

text, we need not defer to legislative history. See Calvert

Anesthesia Associates v. Commissioner, 110 T.C. 285, 289 (1998);

see also Huntsberry v. Commissioner, supra at 745-746 ("there is

no solid basis in the legislative history or otherwise for

refusing to apply section 55 as written").

B. Constitutional Considerations

Having thus decided that the alternative minimum tax is

otherwise applicable on the facts of this case, we turn now to

petitioners' contention that such tax unconstitutionally inhibits

the free exercise of religion.

Cases have held that the usual presumption of

constitutionality is particularly strong in the case of a revenue
 - 11 -

measure. Black v. Commissioner, 69 T.C. 505 (1977). The

constitutionality of the alternative minimum tax has previously

been upheld by the courts. E.g., Graff v. Commissioner, 74 T.C.

743, 767 (1980) (and cases cited therein), affd. per curiam 673

F.2d 784 (5th Cir. 1982); see Wallach v. United States, 800 F.2d

1121 (Fed. Cir. 1986); Wyly v. United States, 662 F.2d 397, 403-

406 (5th Cir. 1981); Christine v. Commissioner, T.C. Memo.

1993-473; Okin v. Commissioner, supra.

Absent clear evidence to the contrary, we are reluctant to

hold that the alternative minimum tax infringes on a taxpayer's

personal religious beliefs. "The fact that a law with a secular

purpose may have the effect of making the observance of some

religious beliefs more expensive does not render the statute

unconstitutional under the First Amendment." Black v.

Commissioner, supra at 510 (citing Braunfeld v. Brown, 366 U.S.

599, 605-607 (1961)). Moreover, we conclude, as in Black, that

"religious beliefs have consistently been held not to furnish a

basis for complaint about our tax system, at least where the

statutory provision attacked is not specifically based, or cannot

be shown to be based, upon a classification grounded on

religion." Black v. Commissioner, supra at 510, and cases cited

therein; see Adams v. Commissioner, 110 T.C. 137, 139 (1998)

("the Supreme Court has established that uniform, mandatory

participation in the Federal income tax system, irrespective of
 - 12 -

religious belief, is a compelling governmental interest"); see

also Bob Jones Univ. v. United States, 461 U.S. 574, 603 (1983).

In the present case, the alternative minimum tax is not

based upon "a classification grounded on religion." Rather, the

statute demonstrates that such tax is triggered by the value of

deductions and exemptions claimed, the disallowance of which is

unrelated to a taxpayer's religious beliefs. Cf. Commissioner v.

Sullivan, 356 U.S. 27, 28 (1958); New Colonial Ice Co. v.

Helvering, 292 U.S. 435, 440 (1934) (deductions are a matter of

legislative grace; accordingly, the decision whether to permit

particular deductions and under what circumstances lies within

the discretion of Congress). Consequently, we do not agree that

the alternative minimum tax unconstitutionally inhibits the free

exercise of petitioners' religion.

C. Conclusion

In view of the foregoing, we hold that petitioners are

liable for the alternative minimum tax. Accordingly, we sustain

respondent's determination of the deficiency in income tax.

Absent some constitutional defect, we are constrained to

apply the law as written, see Estate of Cowser v. Commissioner,

736 F.2d 1168, 1171-1174 (7th Cir. 1984), affg. 80 T.C. 783, 787-

788 (1983), and we may not rewrite the law because we may deem

its effects susceptible of improvement; see Commissioner v.

Lundy, 516 U.S. 235, 252 (1996), (quoting Badaracco v.

Commissioner, 464 U.S. 386, 398 (1984)). Accordingly,
 - 13 -

petitioners' appeal for relief must, in this instance, be

addressed to their elected representatives.

To reflect our disposition of the disputed issue, as well as

respondent's concession,

Decision will be entered

for respondent as to the

deficiency in income tax and

for petitioners as to the

addition to tax.