MARX v. COMMISSIONER

T.C. Summary Opinion 2003-23

UNITED STATES TAX COURT

DAVID M. MARX, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10463-01S. Filed March 19, 2003.

David M. Marx, pro se.

Guy H. Glaser, for respondent.

GOLDBERG, Special Trial Judge: This case was heard pursuant

to the provisions of section 7463 of the Internal Revenue Code in

effect at the time the petition was filed. The decision to be

entered is not reviewable by any other court, and this opinion

should not be cited as authority. Unless otherwise indicated,

subsequent section references are to the Internal Revenue Code in

effect for the year at issue.

Respondent determined a deficiency in petitioner’s Federal
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income tax for 1999 of $439.45. The sole issue for decision is

whether petitioner is subject to the alternative minimum tax

(AMT).

Some of the facts in this case have been stipulated and are

so found. The stipulation of facts and the attached exhibits are

incorporated herein by this reference. At the time the petition

was filed, petitioner lived in Los Angeles, California.

During 1999, petitioner was employed by Sun Microsystems,

Inc., as a programmer. On his timely filed Form 1040, U.S.

Individual Income Tax Return for 1999, petitioner reported the

following items of income:

Line Amount

7 Wages $117,515.82
8a Taxable interest 3,501.76
9 Ordinary dividends 1,273.40
13 Capital gain 893,468.96
22 Total income $1,015,759.94
33 Adjusted gross income $1,015,759.94

In preparing his 1999 tax return, petitioner correctly

claimed no deduction for a personal exemption because the

exemption amount was completely phased out pursuant to section

151(d). In further preparing his return, petitioner determined

that he incurred the following amounts for taxes paid during 1999

that qualified as itemized deductions pursuant to section 164(a):

State and local income taxes $9,153.10
Personal property taxes 97.00
Total itemized deductions $9,250.10

Since petitioner’s adjusted gross income for 1999 exceeded
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$126,600, he calculated the section 68 limitation on his

otherwise allowable itemized deductions and determined he was

required to reduce his total itemized deductions by $7,400.08.

Thus, petitioner’s total itemized deductions were limited to

$1,850.02. Accordingly, petitioner decided to deduct the section

63(c) standard deduction for a single individual in the amount of

$4,300 in lieu of electing to deduct the lesser limited itemized

deduction amount of $1,850.02. Petitioner then computed his 1999

taxable income and income tax liability using the maximum capital

gains rate method as follows:

Adjusted gross income $1,015,759.94
Less: Standard deduction 4,300.00
Taxable income $1,011,459.94

Total tax (sec. 1(c), (h)) $210,049.99

Because petitioner claimed the standard deduction, he was

not required to file Schedule A, Itemized Deductions. However,

petitioner filed a blank Schedule A with his income tax return,

reporting absolutely no information or deductions on the form.

Further, petitioner did not report any AMT on his 1999 Form 1040,

nor did he include Form 6251, Alternative Minimum Tax--

Individuals, with his return.

After receiving petitioner’s income tax return, respondent

sent petitioner correspondence informing petitioner that Form

6251 was required to process the return accurately. Respondent

requested that petitioner file a Form 6251 timely. Thereafter,
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petitioner completed the Form 6251 and submitted a copy to

respondent.

In computing his alternative minimum taxable income (AMTI)

on Form 6251, petitioner made the following three adjustments:

(1) He increased the AMTI amount by the $9,250.10 of taxes paid

during the year; (2) he increased the AMTI amount by $578.08 for

tax-exempt interest from private activity bonds issued after

August 7, 1986; and (3) he decreased the AMTI amount by the

$7,400.08 that represents the amount by which his otherwise

allowable itemized deductions would have been limited had he

elected to itemize his deductions for regular tax purposes.

Petitioner made no adjustment to his AMTI for the $4,300 standard

deduction he actually deducted on Form 1040. On the basis of his

above adjustments in arriving at AMTI, petitioner determined that

he owed no AMT for 1999.

Upon reviewing petitioner’s Form 6251, respondent disallowed

petitioner’s adjustments to AMTI for the itemized deductions that

were not used in computing regular taxable income. Respondent’s

position is that taxpayers who claim the standard deduction for

regular tax purposes may not use itemized deductions for AMT

purposes.

Respondent recomputed petitioner’s AMTI by making an

increasing adjustment for the $4,300 standard deduction claimed

on petitioner’s Form 1040. Respondent made no corresponding
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adjustment to AMTI for the $578.08 of tax-exempt interest from

private utility bonds that petitioner reported on his Form 6251.

The record is devoid of an explanation why the tax-exempt

interest was not included in respondent’s computation. On the

basis of the above adjustments, respondent determined in the

notice of deficiency that petitioner was subject to $439.45 of

AMT for 1999.

The AMT provisions of the Internal Revenue Code (Code),

sections 55-59, were enacted to establish a floor for tax

liability, so that a taxpayer will pay some tax regardless of the

exclusions, deductions, and credits otherwise available to him

under the regular income tax statutes. See S. Rept. 99-313, at

518 (1986), 1986-3 C.B. (Vol. 3) 1, 518. The AMT provisions

accomplish this goal by eliminating favorable treatment given to

certain items for purposes of the regular income tax. See secs.

55(b)(2), 56, 57, and 58.

Pursuant to section 55(a), the AMT is applicable only if,

and to the extent that, the “tentative minimum tax” exceeds the

taxpayer’s “regular tax”.1 The starting point in computing the

AMT liability is determining the AMTI, which equals the

taxpayer’s taxable income for the year with the adjustments

provided in sections 56 and 58 and increased by the amount of tax

1
For petitioner, “the term ‘regular tax’ means the regular
tax liability for the taxable year (as defined in sec. 26(b)).”
Sec. 55(c)(1).
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preference items set forth in section 57. To determine the

taxable amount of AMTI, the AMTI is reduced by an exemption

amount, which for a single taxpayer is $33,750, subject to a

gradual phaseout of the exemption amount as AMTI exceeds

$112,500. See sec. 55(d)(1), (3). The applicable AMT rates are

then applied to the AMTI, as reduced by the exemption amount, to

determine the tentative minimum tax (TMT). See sec. 55(b). If

the taxpayer reports capital gains on Form 1040, the TMT is the

lesser of (1) the amount of AMT determined without regard for

section 55(b)(3), or (2) the amount of AMT determined applying

the maximum rate of tax on net capital gains, pursuant to section

55(b)(3). The taxpayer’s regular income tax amount is then

compared to the TMT. If the TMT is greater than the regular

income tax, the difference is added to the regular tax amount to

determine the final tax liability for the taxable year. See sec.

55(a).

Petitioner does not dispute that he is subject to the AMT;

he simply argues that he has no AMT liability. Petitioner bases

his argument on his belief that the Code allows him to claim the

standard deduction for regular tax purposes and use his otherwise

allowable itemized deductions to compute his AMTI for AMT

purposes. Specifically, petitioner asserts that even though he

elected to claim the standard deduction for regular tax purposes,

he is entitled to use the full value of his itemized deductions
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when computing AMT, because section 56(b)(1)(F) provides that the

section 68 limitation does not apply when determining the amount

of AMTI. However, petitioner’s argument is based on his narrow

interpretation of the Code. Further, petitioner misunderstands

the application of section 56(b)(1)(F) and the operation of

section 56(b) as a whole.

When interpreting statutes, the function of courts is to

construe the language of the statute to give effect to the intent

of Congress. Cramer v. Commissioner, 101 T.C. 225, 247 (1993),

affd. 64 F.3d 1406 (9th Cir. 1995). Where possible, the words of

the statutes should be interpreted in their ordinary everyday

sense. Crane v. Commissioner, 331 U.S. 1, 6 (1947). A statute

is to be construed so as to give each of its provisions full

effect and not to render parts of the statute inoperative or

superfluous. Duke v. Univ. of Tex., 663 F.2d 522, 526 (5th Cir.

1981).

Accordingly, section 56(b) should be read in its entirety,

as part of a single statutory scheme, and not so as to render

part of the statute inoperative. Section 56(b), in pertinent

part, provides as follows:

SEC. 56(b). Adjustments Applicable to Individuals.–-
In determining the amount of the alternative minimum
taxable income of any taxpayer (other than a
corporation), the following treatment shall apply (in
lieu of the treatment applicable for purposes of
computing the regular tax):

(1) Limitation on deductions.--
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(A) In general.-–No deduction shall be allowed–

* * * * * * *

(ii) for any taxes described in paragraph
(1), (2), or (3) of section 164(a).

* * * * * * *

(E) Standard deduction and deduction for
personal exemptions not allowed.–-The standard
deduction under section 63(c), the deduction for
personal exemptions under section 151, and the
deduction under section 642(b) shall not be allowed.

(F) Section 68 not applicable.–-Section 68
shall not apply.

When reviewed in its entirety and given full effect, section

56(b) provides for adjustments for taxpayers who either claimed

the standard deduction or elected to itemize deductions for

regular tax purposes. Since AMTI is determined by making

adjustments to regular taxable income, the section 56(b)(1)

adjustments correspond to items that were used to determine the

taxpayer’s regular taxable income. Thus, if the taxpayer claimed

the standard deduction for regular tax purposes, section

56(b)(1)(E) requires an adjustment in arriving at AMTI for the

standard deduction amount. Accordingly, if the taxpayer elected

to itemize deductions, section 56(b)(1) requires adjustments in

arriving at AMTI for certain itemized deductions claimed for

regular tax purposes. Further, if the itemized deductions

actually claimed for regular tax purposes were limited pursuant

to section 68, section 56(b)(1)(F) requires the taxpayer to
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recompute the itemized deductions actually claimed as if the

section 68 limitation did not apply.

Nowhere in section 56(b) is there a provision that allows

the taxpayer to make AMTI adjustments for itemized deductions

when the taxpayer claimed the standard deduction in computing

regular taxable income. Nor does section 56(b) specifically

allow the taxpayer to limit his AMT liability by choosing between

the AMTI adjustments for the standard deduction or itemized

deductions for AMT purposes when the taxpayer claimed the

standard deduction for regular tax purposes. The Code simply

does not allow the taxpayer to pick and choose which section

56(b) adjustments apply in an attempt to get favorable AMT

treatment. Once the taxpayer either elects to itemize deductions

or claims the standard deduction for regular tax purposes, the

taxpayer must make section 56(b) adjustments that directly

correspond to the deductions claimed for regular tax purposes.

Specifically addressing petitioner’s argument, section

56(b)(1)(F) provides only that the section 68 limitation on

itemized deductions shall not apply when computing AMTI. This

provision by its terms does not apply to itemized deductions that

would have been limited by section 68 had the taxpayer not

claimed the standard deduction instead. Rather, section

56(b)(1)(F) simply provides that section 68 shall not apply, so

that a taxpayer who elected to itemize deductions for regular tax
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purposes must recompute those itemized deductions for AMT

purposes without regard to the section 68 limitation. For

section 56(b)(1)(F) to apply at all, the taxpayer must have

elected to itemize deductions for regular tax purposes and had

those deductions reduced pursuant to section 68. Petitioner’s

interpretation goes well beyond the limited application of

section 56(b)(1)(F).

To interpret section 56(b)(1)(F) alone without giving full

effect to all the provisions of section 56(b) renders section

56(b)(1)(E) inoperative. Petitioner’s argument is a narrow

interpretation that overlooks section 56(b)(1)(E). By strictly

isolating section 56(b)(1)(F), petitioner is attempting to change

the meaning of the statute as a whole. The only way petitioner’s

argument would have validity would be if section 56(b) contained

a provision allowing the taxpayer to pick and choose which

adjustments were most favorable to his particular tax situation

or a provision allowing for adjustments for itemized deductions

that were not deducted for regular tax purposes because the

standard deduction was claimed. However, no such provisions

exist in the Code. When read as a whole, section 56(b) requires

the taxpayer to make adjustments for AMT purposes in a manner

consistent with decisions made for regular tax purposes.

Accordingly, petitioner’s argument that section 56(b)(1)(F)

allows him to compute AMTI using the full value of his otherwise
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allowable itemized deductions when he claimed the standard

deduction for regular tax purposes is without merit.

We have reviewed respondent’s computations of petitioner’s

AMT for 1999 and find that they comport with the provisions of

sections 55 and 56. However, respondent did not include the

$578.08 of tax-exempt interest from private activity bonds

reported on petitioner’s Form 6251 when respondent determined the

AMTI amount. Had respondent correctly included this amount, the

AMTI would have been increased by $578.08, thereby increasing

petitioner’s AMT by an additional $150.31. Because respondent

did not either include the tax-exempt interest in the AMT

computation included in the notice of deficiency or assert a

claim for an increased deficiency pursuant to section 6214(a)

petitioner is not subject to the additional $150.31 of AMT.

Because petitioner claimed the standard deduction in

computing taxable income for regular tax purposes, he is required

to use the standard deduction amount when determining AMTI for

AMT purposes. Accordingly, petitioner is precluded from using

itemized deductions for AMT purposes and is liable for the

$439.45 of AMT determined by respondent. Respondent is sustained

on this issue.
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Reviewed and adopted as the report of the Small Tax Case

Division.

Decision will be entered

for respondent.